60% marginal rate of income tax

Pennywise

zygurat789 wrote: »

That's a tory chancellor for you.

Well actually it was Gordon Brown and Alistair Darling who caused those marginal tax rates!!!

zygurat789

I think you missed the point.
From them that hath least, take the most

CLAPTON

zygurat789 wrote: »

I think you missed the point.
From them that hath least, take the most

are you totally against means tested benefits then?

pjread

try 40% tax, effective 39% on top for reduction in tax credits, and NI (I think that's only a percent or two at higher rate though?)

Then try paying £400 a month to travel to work. On paper I apparently make reasonable money, but in reality I'd probably only actually be about £200-300 a month down in my pocket if I worked 30 hours a week at £6 an hour (dunno, retail/bar work?) rather than 40hrs+ and 20hrs a week of travel.... I almost wish I was enough of an !!! to just do that...

oh and yeah I finished paying the student loan a year or so ago, but that was another 9%

John_Pierpoint

Something similar appears to happen with IHT and marginal income.

Let us pretend that the deceased dies leaving just a house and 100,000 pounds in the bank.

The house, because it is a Victorian semi of 4 rooms plus kitchen and bathroom is worth 325K (the nil rate band for IHT) because it is inside the M25.

The 100K in the bank is earning 6% (dream on), it pays interest annually and it is due to pay out the £6,000 two months after the death.

So the way the IHT system seems to work:

Q1 What is the house worth?
325,000
Q2 What are the savings worth?
100,000
Q4 Do the investments have any accrued interest or unpaid dividends?
5,000

Ok send us 40% of 105,000 = £42,000 and then we will let you apply for the grant of probate. (Obviously in reality it is a good bit more complicated and if you want to pay interest, you can stall on some of the liability until the house is sold).

Then two months later in comes the interest of £4,800 (that is 6,000
with 20% Income Tax taken off.)

Are you with me so far - that extra 5,000 has paid 2,000 in IHT plus 1,000 in income tax. I make that 60%

But wait a minute we have still got to pay it out as the income of the beneficiary. Now this beneficiary is a careful chap and has managed to stay just under the start of additional rate income tax (40%) up to now.

So now the 6,000 nominal extra amount of gross income hits his tax return.

How much extra tax is the beneficiary expected to pay on this new source of income, when most of it has paid 60% already.

[For the benefit of trolls. the house has been left tax free to a different beneficiary]

John_Pierpoint

John_Pierpoint wrote: »

Something similar appears to happen with IHT and marginal income.

Let us pretend that the deceased dies leaving just a house and 100,000 pounds in the bank.

The house, because it is a Victorian semi of 4 rooms plus kitchen and bathroom is worth 325K (the nil rate band for IHT) because it is inside the M25.

The 100K in the bank is earning 6% (dream on), it pays interest annually and it is due to pay out the £6,000 two months after the death.

So the way the IHT system seems to work:

Q1 What is the house worth?
325,000
Q2 What are the savings worth?
100,000
Q4 Do the investments have any accrued interest or unpaid dividends?
5,000

Ok send us 40% of 105,000 = £42,000 and then we will let you apply for the grant of probate. (Obviously in reality it is a good bit more complicated and if you want to pay interest, you can stall on some of the liability until the house is sold).

Then two months later in comes the interest of £4,800 (that is 6,000
with 20% Income Tax taken off.)

Are you with me so far - that extra 5,000 has paid 2,000 in IHT plus 1,000 in income tax. I make that 60%

But wait a minute we have still got to pay it out as the income of the beneficiary. Now this beneficiary is a careful chap and has managed to stay just under the start of additional rate income tax (40%) up to now.

So now the 6,000 nominal extra amount of gross income hits his tax return.

How much extra tax is the beneficiary expected to pay on this new source of income, when most of it has paid 60% already.

[For the benefit of trolls. the house has been left tax free to a different beneficiary]

How disappointing none of the experts have answered the question.
Here is the answer:

TSEM7688 - Deceased persons: interests in residue - practical and computational aspects - special reliefs for higher rate taxpayers

There are two occasions when there is a special tax relief available only where the beneficiary is liable to tax at the higher rate.
First occasion

The first occasion is where part of the income is taken into account in computing both

• the estate of the deceased for inheritance tax purposes, and
• the income of the personal representatives for income tax purposes.

Second occasion

The second occasion applies to years up to and including 1994-95. It is when the expenses allowable in computing the residuary income exceed the aggregate income for the year of payment.
Relief under ITTOIA/S669

Income that accrued during the lifetime of the deceased but was paid after death is treated under inheritance tax rules as part of the estate of the deceased person. The same income is treated as part of the net statutory income of the estate and therefore enters into the computation of residuary income.

Where this happens, a residuary beneficiary who is liable to tax at the higher rate may claim a deduction from the residuary income of an amount equal to the inheritance tax applicable to the accrued income.

Many of these cases will be among those where HMRC Trusts Edinburgh obtains information about the estate income. If you are asked for advice on relief under ITTOIA/S669 refer the request to HMRC Trusts Edinburgh.


So that is OK then, if you have a Ph.D. in obfuscation and unnecessary complexity.