The 60% Tax Trap
Discussion
A fair few articles on this this week with the treasury losing out on tax as people pile cash into pensions and others aren't taking up roles in this salary band. Others caught in it are doing less as why do you want promotion to only lose all benefit of it to the government.
Is it best just to drop your salary to £99,999.99 and shovel the rest into pensions or other non taxable benefits? As I understand it the loss of tax free allowance is uniform so it only gets progressively worse until you lose it completely. The 12.5k tax free is surely worth preserving?
Is it best just to drop your salary to £99,999.99 and shovel the rest into pensions or other non taxable benefits? As I understand it the loss of tax free allowance is uniform so it only gets progressively worse until you lose it completely. The 12.5k tax free is surely worth preserving?
Yes. Lots of people I know work quite hard to keep their income at just below the limit.
The effect is even more severe if you also have children with the 30 hours childcare.
Go £1 over and you could be losing thousands of pounds. Factor this in and the effective tax rate can be >100% !!
The effect is even more severe if you also have children with the 30 hours childcare.
Go £1 over and you could be losing thousands of pounds. Factor this in and the effective tax rate can be >100% !!
I'm in the fortunate position of being able to set my own salary level, which is just under £100,000, specifically to keep myself out of the 60% trap.
If the 40% rate remained above £100,000, then I could happily take more salary, with more tax revenue going to the exchequer. However, under the current system, the taxman loses out on additional income because the tax rate is unreasonably high.
The Laffer curve in action.
If the 40% rate remained above £100,000, then I could happily take more salary, with more tax revenue going to the exchequer. However, under the current system, the taxman loses out on additional income because the tax rate is unreasonably high.
The Laffer curve in action.
Mandat said:
I'm in the fortunate position of being able to set my own salary level, which is just under £100,000, specifically to keep myself out of the 60% trap.
If the 40% rate remained above £100,000, then I could happily take more salary, with more tax revenue going to the exchequer. However, under the current system, the taxman loses out on additional income because the tax rate is unreasonably high.
The Laffer curve in action.
Strange isn't it how this government and the previous one in fairness, think you can tax your way to prosperity. When will they learn?If the 40% rate remained above £100,000, then I could happily take more salary, with more tax revenue going to the exchequer. However, under the current system, the taxman loses out on additional income because the tax rate is unreasonably high.
The Laffer curve in action.
Tom8 said:
Is it best just to drop your salary to £99,999.99 and shovel the rest into pensions or other non taxable benefits?
Yes. If you have salary sacrifice aswell, you can be earning substantially more than £100k but pile maximums into car SS, pensions and other benefits and still maintain taxable income under £100k.
Mandat said:
I'm in the fortunate position of being able to set my own salary level, which is just under £100,000, specifically to keep myself out of the 60% trap.
If the 40% rate remained above £100,000, then I could happily take more salary, with more tax revenue going to the exchequer. However, under the current system, the taxman loses out on additional income because the tax rate is unreasonably high.
The Laffer curve in action.
I assume you're putting the remainder into your pension. Surely all your doing is deferring the tax until later (although potentially you will be in a lower tax band by then) ?If the 40% rate remained above £100,000, then I could happily take more salary, with more tax revenue going to the exchequer. However, under the current system, the taxman loses out on additional income because the tax rate is unreasonably high.
The Laffer curve in action.
Also another way of looking at it - when you put it into your pension it gets invested and generates profits for the companies it's been invested in, who will then be paying CT (as well as generating GDP) so there IS still a benefit to HMRC.
For any retired person over SPA whose taxable income exceeds £100,000 by a whisker, because of a combination of State pension, private pension and interest on savings accumulated for a decent retirement etc, they too must pay 60%. Unfortunately, very few options, eg salary sacrifice, are available to mitigate this increased tax liability. Gifting becomes a major consideration.
R.
R.
Tom8 said:
A fair few articles on this this week with the treasury losing out on tax as people pile cash into pensions and others aren't taking up roles in this salary band. Others caught in it are doing less as why do you want promotion to only lose all benefit of it to the government.
Is it best just to drop your salary to £99,999.99 and shovel the rest into pensions or other non taxable benefits? As I understand it the loss of tax free allowance is uniform so it only gets progressively worse until you lose it completely. The 12.5k tax free is surely worth preserving?
Peak PH to have to drop your salary to £99,999 & stuff the other vehicles for money earned Is it best just to drop your salary to £99,999.99 and shovel the rest into pensions or other non taxable benefits? As I understand it the loss of tax free allowance is uniform so it only gets progressively worse until you lose it completely. The 12.5k tax free is surely worth preserving?
I wonder how the salary curve for PH compares with the UK as a whole, where the top 10% average £72K.
mikeiow said:
Peak PH to have to drop your salary to £99,999 & stuff the other vehicles for money earned
I wonder how the salary curve for PH compares with the UK as a whole, where the top 10% average £72K.
There are lies, damn lies, and statistics...I wonder how the salary curve for PH compares with the UK as a whole, where the top 10% average £72K.
If that data's from the ONS it's "The Annual Survey of Hours and Earnings (ASHE) collects information on actual payments made to the employee and the hours on which this pay was calculated. It is based on employer responses for a 1% sample of employee jobs, using HM Revenue and Customs Pay As You Earn (PAYE) records to identify individuals’ current employer" which, if I'm reading it right, doesn't take into account that people are deliberately reducing their salaries...
The Leaper said:
For any retired person over SPA whose taxable income exceeds £100,000 by a whisker, because of a combination of State pension, private pension and interest on savings accumulated for a decent retirement etc, they too must pay 60%. Unfortunately, very few options, eg salary sacrifice, are available to mitigate this increased tax liability. Gifting becomes a major consideration.
R.
What do you mean by gifting?R.
The Leaper said:
For any retired person over SPA whose taxable income exceeds £100,000 by a whisker, because of a combination of State pension, private pension and interest on savings accumulated for a decent retirement etc, they too must pay 60%. Unfortunately, very few options, eg salary sacrifice, are available to mitigate this increased tax liability. Gifting becomes a major consideration.
R.
Guess this is largely a doctor/ long-serving senior civil servant position, as in really can't do a lot about an index linked final salary pension (thoughts and prayers to all in this truly horrific position of course).R.
One does wonder why anyone with a cash pot that can yield a ton or more a year doesn't go to a country with a double taxation treaty that allows access with less pain, but I suspect this is a niche issue, rather than the obvious bow waves at 60k and 100k at earlier points in careers, that it isn't likely to garner specific help, unless it is swept up with any future band changes. When all that happens is is becomes a 105k issue, or 110... And less-round numbers are less headline grabbing.
One things for sure, 4.5 years left of this shower and bar the final year to try and get voted, they'll be enjoying the fiscal drag for as long as they can.
And at some point those on PAYE who may have taken a 20% deduction for say, going 4 days/ week, will find with inflation they'll be back close to the bar anyway. It's as if they know...
I think Reddit community and Martin Lewis can take a lot of the credit for people being much much more aware of this than they otherwise would be.
Hopefully the more people that take their salary to £99k the more likely it will be that a government addresses it.
The main issue as with SO much in the U.K. is that any change to that magic number of £100k is seen as pandering to the rich and many voters hate people being successful, despite as we’ve seen on this forum many times, £100k doesn’t buy you a life of note in big chunks of the country now.
Hopefully the more people that take their salary to £99k the more likely it will be that a government addresses it.
The main issue as with SO much in the U.K. is that any change to that magic number of £100k is seen as pandering to the rich and many voters hate people being successful, despite as we’ve seen on this forum many times, £100k doesn’t buy you a life of note in big chunks of the country now.
okgo said:
Hopefully the more people that take their salary to £99k the more likely it will be that a government addresses it.
It's a growing issue because of "band creep". Similarly loads more people now paying the 40% income tax rate.IIRC they've had to invent some exception or other just to prevent people on basic state pension becoming 20% income tax payers!
Charitable gifts can be handy way to trim income back to £99,999 at the government's expense.
Meh.
I earn just over £50k and am in the middle of the Scottish Higher Rate anomaly on income tax.
My new job next month will see my salary double, and therefore I tip into the even more punitive Scottish Top Rate.
Currently I pay just over £100 a month more than if I lived south of the border on the same salary. Still cannot decide if that is unfair or a bargain for not having to live in England....
I earn just over £50k and am in the middle of the Scottish Higher Rate anomaly on income tax.
My new job next month will see my salary double, and therefore I tip into the even more punitive Scottish Top Rate.
Currently I pay just over £100 a month more than if I lived south of the border on the same salary. Still cannot decide if that is unfair or a bargain for not having to live in England....
POIDH said:
Meh.
I earn just over £50k and am in the middle of the Scottish Higher Rate anomaly on income tax.
My new job next month will see my salary double, and therefore I tip into the even more punitive Scottish Top Rate.
Currently I pay just over £100 a month more than if I lived south of the border on the same salary. Still cannot decide if that is unfair or a bargain for not having to live in England....
I think it’s a bargain to have your entire country sponsored by us I earn just over £50k and am in the middle of the Scottish Higher Rate anomaly on income tax.
My new job next month will see my salary double, and therefore I tip into the even more punitive Scottish Top Rate.
Currently I pay just over £100 a month more than if I lived south of the border on the same salary. Still cannot decide if that is unfair or a bargain for not having to live in England....
okgo said:
I think Reddit community and Martin Lewis can take a lot of the credit for people being much much more aware of this than they otherwise would be.
Hopefully the more people that take their salary to £99k the more likely it will be that a government addresses it.
The main issue as with SO much in the U.K. is that any change to that magic number of £100k is seen as pandering to the rich and many voters hate people being successful, despite as we’ve seen on this forum many times, £100k doesn’t buy you a life of note in big chunks of the country now.
Most PAYE folk have limited scope to minimise their income to £99k so I'm not sure the government will address it. The issue has been around for 15 years it is surprising how many people are not aware. Given the conservatives did nothing about it in 14 years makes it unlikely Labour will do anything either.Hopefully the more people that take their salary to £99k the more likely it will be that a government addresses it.
The main issue as with SO much in the U.K. is that any change to that magic number of £100k is seen as pandering to the rich and many voters hate people being successful, despite as we’ve seen on this forum many times, £100k doesn’t buy you a life of note in big chunks of the country now.
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