The 60p tax rate, over £100k

claire21

Am I reading it right, if you earn enough to get you over this odd earnings period you then only pay at 40p?

Caz3121

40% up to £150k then 45%
http://www.hmrc.gov.uk/rates/it.htm

claire21

There's a part over £100k where you don't get your personal allowance, so that equates to 60% tax, if you can get through that bit you seems to be at 40% if you stay below the next leap.

Gaz83

claire21 wrote: »

There's a part over £100k where you don't get your personal allowance, so that equates to 60% tax, if you can get through that bit you seems to be at 40% if you stay below the next leap.

If you earn over £100,000 then your personal allowance is reduced by £1 for every £2 you earn over it. It's currently £9,440 so you'd need to earn £118,880 to have an effective Personal Allowance of zero.

If you earned £118,880 then you would pay 20% tax on the first £32,010 (a total of £6,402) and then 40% on the other £86,870 (£34,748). You'd pay a total of £41,150 in tax which would work out at 34.6% of your gross income.

I'm not sure where you're getting the 60% figure, but it's not that. Even with national insurance added (a further £5,592) you're still paying a total of only £46,742 in tax and national insurance combined, which is 39.3% of your gross income.

CLAPTON

claire21 wrote: »

Am I reading it right, if you earn enough to get you over this odd earnings period you then only pay at 40p?

one needs to distinguish between your average rate of taxation and your marginal rate of taxation

claire21

It equates to 60p in the £1 for the part over £100k to £120k doesn't it?

(Marginal rate)

CLAPTON

claire21 wrote: »

It equates to 60p in the £1 for the part over £100k to £120k doesn't it?

(Marginal rate)

yes indeed, for this band the marginal rate of tax is 60%

claire21

What I think I'm getting my self confused about is, when I read an article first it made it sound like if you earns say £135k you would avoid this marginal rate of taxation and just stay at the 40% rate and I thought how can that be correct eg if you were somewhere in the middle bit you paid more. But reading more articles on it if you earn £135k you too would have lost your personal allowance and after getting over that 60p bit you were only then back down to 40%

theEnd

claire21 wrote: »

What I think I'm getting my self confused about is, when I read an article first it made it sound like if you earns say £135k you would avoid this marginal rate of taxation and just stay at the 40% rate and I thought how can that be correct eg if you were somewhere in the middle bit you paid more. But reading more articles on it if you earn £135k you too would have lost your personal allowance and after getting over that 60p bit you were only then back down to 40%

That's correct. Marginal rate goes up to 60%, then back down to 40%, then back up to 45%.

Everytime a govt messes around with tax or benefits, they just seem to make things odd and more complicated.

chrismac1

In fact from a revenue-generation point of view this was a really shrewd stealth tax on Darling's part. How many jobs do you see advertised at £97k plus bens compared to £100k plus bens?

The £100k to £110k area is a real sweet spot and Darling whammied it! For clients in this bracket, it makes sense to make substantial pension contributions to get back out of the 60% marginal rate area.

ceivegz

There's a good blog article in the Spectator about the 60% rate and how it's basically a back door stealth tax for the "affluent but not necessarily rich":

http://blogs.spectator.co.uk/coffeehouse/2013/03/forget-50p-scrap-the-60p-tax-rate/