60% income tax rate

baby_boomer

baileysbattlebus wrote: »

Perhaps it hasn't had a lot of coverage because it was announced in November's Pre Budget.



http://www.parliament.the-stationery-office.co.uk/pa/cm200809/cmselect/cmtreasy/69/6905.htm

I'm surprised no one remembers.

But the difference is that he's completely abolished the allowance at £100K whereas the previous scheme allowed for some relief once you went through the threshold.

Both changes created unfair distortions - but the new one distorts the system even more.

How daft is it that you'd rather be paid £99,999 than £106,000? What would we be saying if he did the same at £19,999 to £26,000?

You'd need to be a complete idiot to create such a scheme.

P.S. while I agree with some of the gist of what the OP was driving at, I concur with others' criticism of his/her style of starting threads. It's disrespectful to waste others' time like this IMO.

thelawnet

baileysbattlebus wrote: »

Perhaps it hasn't had a lot of coverage because it was announced in November's Pre Budget, although it was at 45% not 50%.

You've got your tax rises confused. A 45% rate was announced in November - that is now 50%. That 50% rate is #1 news item.

The personal allowance change was announced so people on £100k would only lose HALF their allowance. That has changed to all of it. This has not really been reported.

The personal allowance is worth about £2.5k in your salary a year - I know because I don't have it, I pay tax at basic rate. And as this is on a tapering scale £2.5k is the maximum it's removal will cost someone a year. Up to £150k.

It's when you get past the £150k it starts to make a real difference.

Yes £2.5k is about right. But as for making a real difference, somebody on £112k will pay £2.4k more tax than before due to the 60% band. Somebody on £162k will only pay £1.2k more tax as a result of the 50% band.

So not only do you have to earn far more for the 50% band to kick in, the 60% tax is heavier.

As for its effect, earners earning £100k to £112k or so will pay 61% tax overall on the £12k or so. Will they put up it that? I doubt it. More tax avoidance coming.

lostinrates

Walletwatch wrote: »

Off to tell some friends of mine at work as to how they are affected by this.

Don't you work for a bank? Isnt it a bit worrying people in a bank needed to be told how the figures stack up?:eek:

Apologies if I've got that wrong:o

kennyboy66_2

thelawnet wrote: »

It certainly does.

Here are approximate numbers:

Personal allowance: £6,000
Basic rate allowance: £35,000
Basic rate of tax 20%
Higher rate of tax 40%

And some figures.

Example 1:
Earned Income £100,000
Personal allowance £6,000
Income taxed at 20% - £35,000
Income taxed at 40% = £100,000-£35,000-£6,000 = £59,000
Total income tax = £35,000*.2 + £59,000*.4 = £30,600

Example 2:
Earned Income £112,000
Personal allowance £0 (budget report page 106 5.88, "The personal allowance will be reduced at a rate of £1 for every £2 over £100,000 until completely withdrawn")
Income taxed at 20% - £35,000
Income taxed at 40% = £112,000-£35,000 = £77,000
Total income tax = £35,000*.2 + £77,000*.4 = £37,800

So example 2 earns £12,000 more than example 1, and pays £7,200 more tax.

£7200/£12000 = 60%.

60% tax rate - undeniable fact.

You seem remarkably excited by this, but at least you explained this nice and clearly. You are also right about Brown doing it this way purely for political purposes.

However it is not a "tax rate" or "tax band" in the normal sense.

It is a marginal tax rate between 2 earnings points - oddities like which exist all over the tax and benefit system.

Something like 13% of adults pay a marginal tax rate of over 70% once benefit clawbacks are included.

http://www.spectator.co.uk/print/trading-floor/564021/marginal-tax-rates.thtml

Surprise, surprise, you don't hear much about this, despite the fact that low paid marginal tax rates affect literally millions more people.

If Labour had been truly radical, they could have reformed this over the last 12 years. The opportunity has been sadly wasted.

baileysbattlebus

thelawnet wrote: »

You've got your tax rises confused. A 45% rate was announced in November - that is now 50%. That 50% rate is #1 news item.

The personal allowance change was announced so people on £100k would only lose HALF their allowance. That has changed to all of it. This has not really been reported.



Yes £2.5k is about right. But as for making a real difference, somebody on £112k will pay £2.4k more tax than before due to the 60% band. Somebody on £162k will only pay £1.2k more tax as a result of the 50% band.

So not only do you have to earn far more for the 50% band to kick in, the 60% tax is heavier.

As for its effect, earners earning £100k to £112k or so will pay 61% tax overall on the £12k or so. Will they put up it that? I doubt it. More tax avoidance coming.

Sorry, I know it's 50% - I didn't express that in my post very well.

michaels

Don't worry - I am sure they have scrapping the upper limit on NI up their sleeves - it is only by taxing the non-avoiders on around 30k up that there will be any chance of closing the £175bn (and no doubt the rest, when was the last time a govt underestimated the PSBR?) black hole.

StevieJ

thelawnet wrote: »

Back to the 70s for Labour. Expect dead bodies in the streets soon.

(60% tax band is from £100k-£113k, and is much more significant than the 50% tax band over £150k. It's the latest in a long line of Labour stealth taxes.)

Edit: Explained below, this is the removal of the personal allowance for incomes over £100k, which is the same as a 60% tax band.

So it is similar to the restriction of pensioners age allowance over £ 22,900?
It says here that it will cost 700,000 people £220 a month, I make that 1.85 billion into the coffers per annum.

http://www.ukbudget.com/UKBudget2009/index.cfm

misskool

So they tax the high earners out of the country?

No one wants to pay tax and those that are in the high tax brackets will be able to move their country of domicile to somewhere that is more leniant towards their pound of flesh. The only winners in this announcement is the spin doctors that dreamt this up.

StevieJ

misskool wrote: »

So they tax the high earners out of the country?

No one wants to pay tax and those that are in the high tax brackets will be able to move their country of domicile to somewhere that is more leniant towards their pound of flesh. The only winners in this announcement is the spin doctors that dreamt this up.

It is OK, if they are city types they will not notice anyway, like they didn't notice how dodgy some of financial intruments were

vivatifosi

misskool wrote: »

So they tax the high earners out of the country?

No one wants to pay tax and those that are in the high tax brackets will be able to move their country of domicile to somewhere that is more leniant towards their pound of flesh. The only winners in this announcement is the spin doctors that dreamt this up.

Exactly, those on £150k plus are those whose a) skills are likely to be portable to other economies with lower tax regimes and b) are more likely to have good accountants who can offshore some of it or find tax avoidance schemes. If enough of them do this then they could actually end up with a lower tax take than they would have got if they put it up to 45%.