Tax thresholds pondering

daveaspy

Does anybody see these going up before the "freeze" ends in 2026? Its absolutely bonkers at 50k!

I'm fortunate to be going into higher tax territory with a new job and and any extra pay between 50-60k is going to end up being slashed by nearly 70% when you take student loan and HICBC into account. Obviously I'm going to try and sacrifice as much as I can to stay under 50k, which is great for my pension pot, but it doesn't help with living standards now. I'm sure a large number of people do the same, trying to stay under 50k, but surely it would benefit the government coffers and the economy if people weren't hit so hard at 50k, which meant they actually took the pay, paid some tax on it and spent the money rather than stashing it for 30 years??

How can I justify giving up nearly 7k to the government for 3k in my pocket? I can't - so the gov misses out on thousands in tax and VAT, the places I spend money miss out on a few more thousand, and thats just from me. Am I missing something??

Dazed_and_C0nfused

It's quite lucrative for the Chancellor so I wouldn't expect any change.


https://commonslibrary.parliament.uk/research-briefings/cbp-9186/#:~:text=In the Spring 2021 Budget,/23 to 2025/26.

Albermarle

Am I missing something??

You will hopefully be able to retire earlier due to your bigger pension pot !

molerat

If there is any increase it will likely be to the personal allowance rather than the higher rate thresholds, giving more to the "rich" without giving to the poor would not go down well but the opposite would.

MattMattMattUK

daveaspy said:

Does anybody see these going up before the "freeze" ends in 2026? Its absolutely bonkers at 50k!

I'm fortunate to be going into higher tax territory with a new job and and any extra pay between 50-60k is going to end up being slashed by nearly 70% when you take student loan and HICBC into account. Obviously I'm going to try and sacrifice as much as I can to stay under 50k, which is great for my pension pot, but it doesn't help with living standards now. I'm sure a large number of people do the same, trying to stay under 50k, but surely it would benefit the government coffers and the economy if people weren't hit so hard at 50k, which meant they actually took the pay, paid some tax on it and spent the money rather than stashing it for 30 years??

How can I justify giving up nearly 7k to the government for 3k in my pocket? I can't - so the gov misses out on thousands in tax and VAT, the places I spend money miss out on a few more thousand, and thats just from me. Am I missing something??

The UK has some of the lowest income taxation in the EU on the bottom two thirds of earners, the UK is running a deficit and has it's highest debt as a percentage of GDP for 70 years, that is how they can justify it. The government also incentivises pension saving as it is considerably cheaper in the long term for the state to have people make a greater provision for themselves in retirement. 

MattMattMattUK

molerat said:

If there is any increase it will likely be to the personal allowance rather than the higher rate thresholds, giving more to the "rich" without giving to the poor would not go down well but the opposite would.

I really hope neither are raised and I say that as someone who is a higher rate taxpayer and likely an additional rate payer in a few years. The UK is a low tax regime, that is why our public services are so badly funded, if we want better services then we have to be prepared to fund them. 

daveaspy

Dazed_and_C0nfused said:

It's quite lucrative for the Chancellor so I wouldn't expect any change.


https://commonslibrary.parliament.uk/research-briefings/cbp-9186/#:~:text=In the Spring 2021 Budget,/23 to 2025/26.

blimey, so thats quite a lot Does their forecast take into account (I assume it does) people taking measures to stay out of the 40% band?

I guess the people affected with HICBC and student loans that fall within that 10 grand band is fairly small, once you get well above 60k the effect of HICBC is watered down (in percentage terms) and loans get paid off fairly quickly.

daveaspy

molerat said:

If there is any increase it will likely be to the personal allowance rather than the higher rate thresholds, giving more to the "rich" without giving to the poor would not go down well but the opposite would.

oh absolutely, I would never suggest only helping higher earners.
It feels like the PA should be lifted automatically every year based on CPI or wage inflation, it shouldn't be a big bonus when the chancellor decides to give us a little something extra, freezing them is such a sneaky effective tax rise.

Albermarle

daveaspy said:

Dazed_and_C0nfused said:

It's quite lucrative for the Chancellor so I wouldn't expect any change.


https://commonslibrary.parliament.uk/research-briefings/cbp-9186/#:~:text=In the Spring 2021 Budget,/23 to 2025/26.

blimey, so thats quite a lot Does their forecast take into account (I assume it does) people taking measures to stay out of the 40% band?

I guess the people affected with HICBC and student loans that fall within that 10 grand band is fairly small, once you get well above 60k the effect of HICBC is watered down (in percentage terms) and loans get paid off fairly quickly.

You also have to take into account that many people paying 40% tax, will be unaware of measures you can take to reduce your tax liability, such as additional pension contributions. Or will be unwilling to do anything that will reduce their net pay, even if financially sensible. There will be some who are not even aware they are paying 40% tax, and have no clue about personal allowances etc.

Grumpy_chap

In recent times, the personal allowance, higher rate and additional rate thresholds (plus tapering of the personal allowance) have all remained static, or virtually static.  This has the effect of increasing tax take, yet no-one actually pays "more".

With inflation rising and NMW increasing plus the pension triple lock, we'll reach a point that everyone has above personal allowance and being higher rate is far from exceptional.  We actually had a briefing at work yesterday where they outlined the business is forecasting and planning on the basis of inflation over the 5 year period (of which this is year 1) at 30 - 35% over the span.

There are two ways that the future tax thresholds can be managed:

1. As currently - at the whim of the Government of the day.

2. Linked to some factor or combination of factors, rather like the triple lock for state pension, that the Government cannot directly control, so something like:

• NMW set by wage commission.
• Personal allowance = 65% of NMW FTEE (full-time equivalent earnings)
• Higher rate = 4 x personal allowance
• Additional rate = 3 x higher rate

The trouble with this type of thing is that the proportions are and can only ever be nominal but once established are soon created as sacrosanct.  It's also highly unlikely to ever happen as no Government likes to give away control in such a fashion.

Dazed_and_C0nfused

Grumpy_chap said:

In recent times, the personal allowance, higher rate and additional rate thresholds (plus tapering of the personal allowance) have all remained static, or virtually static.  This has the effect of increasing tax take, yet no-one actually pays "more".

With inflation rising and NMW increasing plus the pension triple lock, we'll reach a point that everyone has above personal allowance and being higher rate is far from exceptional.  We actually had a briefing at work yesterday where they outlined the business is forecasting and planning on the basis of inflation over the 5 year period (of which this is year 1) at 30 - 35% over the span.

There are two ways that the future tax thresholds can be managed:

1. As currently - at the whim of the Government of the day.

2. Linked to some factor or combination of factors, rather like the triple lock for state pension, that the Government cannot directly control, so something like:

• NMW set by wage commission.
• Personal allowance = 65% of NMW FTEE (full-time equivalent earnings)
• Higher rate = 4 x personal allowance
• Additional rate = 3 x higher rate

The trouble with this type of thing is that the proportions are and can only ever be nominal but once established are soon created as sacrosanct.  It's also highly unlikely to ever happen as no Government likes to give away control in such a fashion.

And even if one Chancellor thought it was a good idea the next one would likely see things differently and completely change it!