Extra tax infographic

zagfles

sultan123 said:

Sky news have the following:

https://news.sky.com/story/ed-conway-middle-earners-facing-same-tax-hit-as-those-on-six-figures-as-autumn-statement-starts-to-unravel-12750496

The Resolution Foundation provided a stark illustration of the issue here: If you earn £62,000 you'll end up paying an extra £1,600 in taxes.

The same goes for someone earning £124,000 - they pay an extra £1,600.

Any accuracy to these numbers?

No. It's guesswork based on assumptions about wage growth plus probably cherry picked salary levels to score political points.

Also a lot of journalistic spin to continue the narrative - if you look at the "real disposable household income chart" this shows we're better off in real terms than before the financial crisis, but is spun as us being worse off than we "would have been had their incomes carried on rising as they were before the financial crisis in 2008"!!

So if the magic money tree had continued we'd all be filthy rich, but as it collapsed and we had COVID, Brexit and a major war in Europe, we'll have to carry on living on not much more real terms than in 2007.

Albermarle

sultan123 said:

Albermarle said:

If my maths is correct it seems to be assuming 20% wage growth between now and 2026, but hardly any wage growth for the following two years. Seems like a big assumption.

but if you are on 12k PA you never pay any tax no matter what tax year?

The infographic is assuming that the salaries will go by 20% in the next 4 years, so someone earning £12K today, will be earning around £14.5 K in 2026. As the PA is frozen at £12570, then they will pay tax. About £400

sultan123

How do you know its 20% assumption?

What would it look like for someone earning 100k in 4 years time

Albermarle

sultan123 said:

How do you know its 20% assumption?

What would it look like for someone earning 100k in 4 years time

Because you can calculate that from the figures given, although it actually over 6 years not 4 ( my mistake)

For example it says someone earning £20 K today will be paying £1486 in tax .
£20,000 minus £12,570 X 20 % = £1486, so we agree 

Then it says in 2028 , the same person will pay £2852 in tax, so they must be earning a higher salary. The personal allowance is frozen so you can work backwards.
(£2585 X 5 ) + £12570 = a salary of £25,495 .

So they have assumed that over the 6 years the salary will have increased by £5,495. Actually it is an increase of 27% over 6 years , so more than I first estimated.

If you earned £100K today and £100K in 6 years time, you will pay exactly the same amount of tax. So it depends on how much you salary goes up in the meantime. In any case you would pay more tax if your salary went up anyway, even if the personal allowance was not frozen, but now you will pay a bit more because it is frozen.

sultan123

Albermarle said:

sultan123 said:

How do you know its 20% assumption?

What would it look like for someone earning 100k in 4 years time

Because you can calculate that from the figures given, although it actually over 6 years not 4 ( my mistake)

For example it says someone earning £20 K today will be paying £1486 in tax .
£20,000 minus £12,570 X 20 % = £1486, so we agree 

Then it says in 2028 , the same person will pay £2852 in tax, so they must be earning a higher salary. The personal allowance is frozen so you can work backwards.
(£2585 X 5 ) + £12570 = a salary of £25,495 .

So they have assumed that over the 6 years the salary will have increased by £5,495. Actually it is an increase of 27% over 6 years , so more than I first estimated.

If you earned £100K today and £100K in 6 years time, you will pay exactly the same amount of tax. So it depends on how much you salary goes up in the meantime. In any case you would pay more tax if your salary went up anyway, even if the personal allowance was not frozen, but now you will pay a bit more because it is frozen.

Sorry I meant if wage goes up from 95k too 100k

eskbanker

sultan123 said:

Albermarle said:

sultan123 said:

How do you know its 20% assumption?

What would it look like for someone earning 100k in 4 years time

Because you can calculate that from the figures given, although it actually over 6 years not 4 ( my mistake)

For example it says someone earning £20 K today will be paying £1486 in tax .
£20,000 minus £12,570 X 20 % = £1486, so we agree 

Then it says in 2028 , the same person will pay £2852 in tax, so they must be earning a higher salary. The personal allowance is frozen so you can work backwards.
(£2585 X 5 ) + £12570 = a salary of £25,495 .

So they have assumed that over the 6 years the salary will have increased by £5,495. Actually it is an increase of 27% over 6 years , so more than I first estimated.

If you earned £100K today and £100K in 6 years time, you will pay exactly the same amount of tax. So it depends on how much you salary goes up in the meantime. In any case you would pay more tax if your salary went up anyway, even if the personal allowance was not frozen, but now you will pay a bit more because it is frozen.

Sorry I meant if wage goes up from 95k too 100k

You seem to be steering this generic thread back into the same territory as your long-running one about your own specific circumstances?

https://forums.moneysavingexpert.com/discussion/6399240/how-much-more-tax

Grumpy_chap

Thanks @Albermarle for the explanations.  I was trying to get my head around it and took a totally different approach to you so did not get anywhere near the answer.

The approach I took was a basic rate tax payer might have expected personal allowance to increase by 10% next year (as per state pension).  So long as the individual remains a basic rate tax payer, allowance of £12.5k would have increased to £13.75k so there would be £1.25k next year subject to tax at 20% that would not be if the threshold increased.  That's a difference of £250 in tax liability.

Similar calculation can be run for any other tax band, or people crossing tax bands etc.

My advise to anyone on, or near, £100k now would be to engage the services of an Accountant as, irrespective of what happens (or doesn't happen) to tax bands, they are at risk of landing in the 62% effective tax rate (higher if child care applies) and that is worth some effort and planning to the specific circumstances of the individual.

eskbanker

Grumpy_chap said:

The approach I took was a basic rate tax payer might have expected personal allowance to increase by 10% next year (as per state pension).  So long as the individual remains a basic rate tax payer, allowance of £12.5k would have increased to £13.75k so there would be £1.25k next year subject to tax at 20% that would not be if the threshold increased.  That's a difference of £250 in tax liability.

It had already been announced (last year?) that the personal allowance was to be frozen until 2026, so this week's announcement simply extended that freeze until 2028, i.e. there was never going to be a 10% increase (or indeed any increase) next year....

Grumpy_chap

eskbanker said:

Grumpy_chap said:

The approach I took was a basic rate tax payer might have expected personal allowance to increase by 10% next year (as per state pension).  So long as the individual remains a basic rate tax payer, allowance of £12.5k would have increased to £13.75k so there would be £1.25k next year subject to tax at 20% that would not be if the threshold increased.  That's a difference of £250 in tax liability.

It had already been announced (last year?) that the personal allowance was to be frozen until 2026, so this week's announcement simply extended that freeze until 2028, i.e. there was never going to be a 10% increase (or indeed any increase) next year....

Ah well, thank you.
I was sort of aware about a short freeze.

Maybe now the freeze is extended, we will be paying less tax.  If all the media scare stories are to be believed, by 2026 we will be in a massive recession with deflation so an adjustment to tax thresholds at that time would be negative.  Seems like almost reckless abandon to set out now a freeze rather than a reduction in tax thresholds.  Where will all this generosity be funded from? 

Is there much precedent for tax thresholds to be reduced?  Other than reductions to the pensions LTA a few years back, I can only really think of the reductions in this budget - higher rate starting point, CGT, dividends tax.

[Deleted User]

U.K. Grumpy_chap said:

eskbanker said:

Grumpy_chap said:

The approach I took was a basic rate tax payer might have expected personal allowance to increase by 10% next year (as per state pension).  So long as the individual remains a basic rate tax payer, allowance of £12.5k would have increased to £13.75k so there would be £1.25k next year subject to tax at 20% that would not be if the threshold increased.  That's a difference of £250 in tax liability.

It had already been announced (last year?) that the personal allowance was to be frozen until 2026, so this week's announcement simply extended that freeze until 2028, i.e. there was never going to be a 10% increase (or indeed any increase) next year....

Ah well, thank you.
I was sort of aware about a short freeze.

Maybe now the freeze is extended, we will be paying less tax.  If all the media scare stories are to be believed, by 2026 we will be in a massive recession with deflation so an adjustment to tax thresholds at that time would be negative.  Seems like almost reckless abandon to set out now a freeze rather than a reduction in tax thresholds.  Where will all this generosity be funded from? 

Is there much precedent for tax thresholds to be reduced?  Other than reductions to the pensions LTA a few years back, I can only really think of the reductions in this budget - higher rate starting point, CGT, dividends tax.

Never been reduced in my working life. See under history of allowances: 

https://en.m.wikipedia.org/wiki/Personal_allowance