How middle class families pay 49% of income in taxes - The Telegraph

drc

http://blogs.telegraph.co.uk/finance/ianmcowie/100006260/how-middle-class-families-pay-49pc-of-income-in-taxes/

How middle class families pay 49pc of income in taxes

Ian Cowie

The average family is now paying a total of 39 per cent of their income in taxes, more than a tenth more than they did in 1997, according to comprehensive new calculations by accountants Smith & Williamson.
Ahead of the Chancellor’s Mansion House speech tonight and further tax hikes expected in next Tuesday’s emergency budget, the figures show just how deep the state already has its arm in our pockets.
Middle class families, where the main breadwinner pays 40 per cent income tax, have been hit even harder. When increases in council tax and stamp duty are taken into account, this family now pays a total of 49 per cent of their income in direct and indirect taxes. That’s an increase of more than 40 per cent since the last Labour government came to power in 1997.
By contrast, very high earners – who now pay the top rate of income tax at 50 per cent – have suffered a smaller increase in taxes. These have risen by a little more than a third to a total of 53 per cent of their income.
Smith & Williamson took a wide variety of taxes, National Insurance and excise duties into account – as well as changes in personal allowances, tax credits and child benefits – to reflect the rising tax burden on families of average, above average and very high incomes.
They used Land Registry figures to form a realistic model of the homes these families live in; respectively terraced, semi-detached and detached houses in Surrey. None paid any capital gains tax because their only property was their home.
Four increases in stamp duty in Gordon Brown’s first four budgets continue to weigh heavily on homebuyers and remain an often-overlooked dampener on activity levels in the housing market.
For example, Smith & Williamson assumed the families only moved once in the 13-year period for the basis of their calculations. But even the average income family in a terraced home – whose rate of stamp duty remained fixed at 1 per cent of purchase price – paid 92 per cent more duty last year because of house price inflation.
The middle class family, who moved from one Surrey semi-detached to another for which they paid £277,000, saw their stamp duty rate treble to 3 per cent and their total duty bill jump from less than £1,500 to more than £8,300.
Very high earners, moving from one detached Surrey house to another for which they paid nearly £530,000 saw their stamp duty rate quadruple to 4 per cent and their total duty bill soar from £2,700 to nearly £21,200.
Richard Mannion, national tax director at Smith & Williamson, said: “The illustrations show that all categories of taxpayer have seen increases in the percentage of their total income taken in tax over the period from 1997.
“As might be expected there have been substantial income tax and NIC increases at all levels of earnings, but what particularly catches my eye is the substantial percentage rises attributable to the stealth taxes like council tax and stamp duty.
“The three biggest contributors to the total tax take are income tax, National Insurance Contributions (NICs) and VAT in that order. If the government is forced to find substantial extra tax quickly, these will be the obvious targets. We already know that employees will be paying more NICs from next April and a VAT rise is on everyone’s lips.
“The importance of income tax as the number one contributor means that more rises could be on the way, with higher rate tax relief on pension contributions being the most likely candidate for the chop – given that it was part of the Liberal Democrats’ tax manifesto.”
Regular readers will know that I made this year’s self-invested personal pension (SIPP) contribution last month to lock in tax relief while it lasts. SIPP providers report thousands of others have also done so.
There is still just time to act if you fear that, bad as things are, a desperate government might make them worse. As these dismal figures demonstrate, they think they need our money more than we do.

apt

Council tax is the very opposite of a stealth tax. Perhaps the Barclay Brothers will agree to pay some UK taxes to ease the burden on 'hard-working' middle-class families.

michaels

As I have stated before the use of the tax system for redistribution via working and child tax credits has allowed a big increase in taxation as a proportion of income for median and above earners be be hidden from the overall taxation as a proportion of GDP number.

I am not saying it is not socially desirable just that it is much less obvious than paying higher benefits to low earners would be; although I would go as far as saying that the resulting high (95% in some instances) marginal effective tax rates are not desirable.

marklv

Tory propaganda. However I do agree on stamp duty - even a modest house where I live now costs over £250k and to pay 3% stamp duty is outrageous, in all fairness. This adds an extra £9k to a £300k house, which you have to factor in when getting a mortgage, unless you are lucky enough to spare the cash.

marklv

apt wrote: »

Council tax is the very opposite of a stealth tax. Perhaps the Barclay Brothers will agree to pay some UK taxes to ease the burden on 'hard-working' middle-class families.

The problem with council tax is that it hits the London/South-East area disproportionately more, and also the people in the most expensive properties pay too little. It needs to be reformed to prevent these distortions.

michaels

I agree the sensationalist presentation is for political purposes but it would seem fairly uncontroversial to state that the average family paid a total of 35% of their income in taxes in 1997 and 39% in 2010 unless you have the figures to show otherwise? The data assumes a single house move in 13 years as well whereas I beleive the average is actaully to move once in every 7 years and thus the stamp duty burden will actually be even higher?

marklv wrote: »

Tory propaganda. However I do agree on stamp duty - even a modest house where I live now costs over £250k and to pay 3% stamp duty is outrageous, in all fairness. This adds an extra £9k to a £300k house, which you have to factor in when getting a mortgage, unless you are lucky enough to spare the cash.

Andy_L

"Middle class families, where the main breadwinner pays 40 per cent income tax"

Seeing as how you have to be in the top ~15% of earners to pay higher rate its an interestering definition of middle class

The_White_Horse

there should be 0% stamp duty on any house bought as a main residence. why should you pay tax to buy a house !!!!!!?????

I can unserstand on second homes, or even shares, but not on the home you live in.

disgusting.

lostinrates

Andy_L wrote: »

"Middle class families, where the main breadwinner pays 40 per cent income tax"

Seeing as how you have to be in the top ~15% of earners to pay higher rate its an interestering definition of middle class

DH pays higher rate, and it has been the consensus of the board that we are middle class. I think thats a fair assumption tbh.

carolt

Andy_L wrote: »

"Middle class families, where the main breadwinner pays 40 per cent income tax"

Seeing as how you have to be in the top ~15% of earners to pay higher rate its an interestering definition of middle class

I think that depends where you live. In many parts of the country, earning over the 40% tax threshold would make you very well of indeed.

In London and S East, it's the minimum you could get by on with a family - given the high cost of house prices/rent.

Degenerate

lostinrates wrote: »

DH pays higher rate, and it has been the consensus of the board that we are middle class. I think thats a fair assumption tbh.

Is middle class just an income bracket these days?

I grew up on a council estate, raised by a single mother, dependent on benefits. I didn't go to university. Worked as a labourer for a couple of years, then managed to get a bottom-rung job in a utility company. After a few years I worked my way into a specialized technical role.

I've been a higher rate tax payer since my mid 20s. Am I middle class?