Marginal tax rate

jscol

Hi all,

Can I check something? If I
1. Live in Scotland 
2. Earn just over 100k

My understanding is that my present effective marginal tax rate is 63%?
I am treating NI contributions as "tax" and therefore I believe my marginal tax rate will rise to 64.25% as of next financial year?

Am I correct?

Thanks for help.

Dazed_and_C0nfused

No.  It's 63.5% at the moment.  But only if your income is no more than £125,140.

41% higher rate income tax

20.5% from loss of Personal Allowance

2% National Insurance

jscol

Thanks.
Yes - my income is less than £125k.
So 64.75% effective marginal taxation as of the start of the next FY?
That is truly awful!!!!!

Dazed_and_C0nfused

jscol said:

Thanks.
Yes - my income is less than £125k.
So 64.75% effective marginal taxation as of the start of the next FY?
That is truly awful!!!!!

To be fair I think there are plenty of people who see some positives to Scotland's tax choices compared to the rest of the UK.

Good public services don't pay for themselves!

This is where additional pension contributions can be incredibly tax efficient.

Say you paid £2,000 to a "relief at source" pension.

The pension company would add £500 in basic rate tax relief giving you a pension fund of £2,500

Your basic rate band would be increased by £2,500 meaning less tax paid at 41%.

Your adjusted net income would be reduced by £2,500 giving you £1,250 of your Personal Allowance back (assuming your adjusted net income was at least £102,500).

jscol

Thanks Dazed_and_C0nfused

Unfortunately I am on track to breach LTA and in some years previously I have gone over pension annual allowance.

Hence for me additional pension contributions are tax inefficient. 

Jeremy535897

You can always look at tax efficient (but risky) investments like EIS and VCT, although they offer a tax credit rather than a deduction from income. Gifts to charity under gift aid qualify for income tax relief at marginal rates. If you had the time, starting a business that requires investment in machinery or equipment can produce trading losses that can reduce taxable income.

jscol

I looked at VCTs a few years ago. This would be when I first drifted into the 60% tax trap.
I found it hard to be convinced of the benefits. I may re-explore now given that I am increasingly fed up of paying such a high rate of tax. 
Is there any country anywhere that has a higher effective tax rate than 64.75% ?

kinger101

^^The marginal tax rate can be even higher if you lose nursery hours or childcare tax credits.

Does your employer offer a salary sacrifice car scheme?

Jeremy535897

No country imposes a marginal income tax rate higher than 60%, but you would have to study their tax regimes in detail to check. After all, if you just looked at international comparisons, you would assume our highest marginal rate was 45%. You have to account for social security and health taxes, and state taxes. 

[Deleted User]

Jeremy535897 said:

No country imposes a marginal income tax rate higher than 60%, but you would have to study their tax regimes in detail to check. After all, if you just looked at international comparisons, you would assume our highest marginal rate was 45%. You have to account for social security and health taxes, and state taxes. 

My former EY colleague is forever telling me that Denmark has the highest marginal rate. Will have to check it out! I always thought that it was Sweden.

Jeremy535897

Yes, Denmark is slightly higher than Sweden at 55.9%, but Cote d'Ivoire is 60% I understand.