60% Tax Trap and Childcare Tax Traps

prowla

You can bung the amount above into a pension, with a view to taking it out if/when you retire and/or if you drop beliow the 100k threshold.

You would've thought that with MPs and ministers falling into that band they'd have nudged it up a bit, though!

Strummer22

Albermarle said:

 For me it's to avoid the HICBC - although I term it the SHTAICBC (slightly higher than average income child benefit charge). 

It kicks in between £50K and £60K , which would make it around 65% higher than the average wage,

• Median gross annual earnings for full-time employees was £34,963 in April 2023, which is a 5.8% increase over the £33,061 in April 2022.

From https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/2023

Annual wage growth will be something like 5.8% again. By April 2024 that would equate to about £37,000 - so the charge starts at 35% above the median full-time wage.

vacheron

While the personal allowance withdrawl over £100k is a bit crazy, this can be alleviated by pension contributions.

How many people capable of earning £100k+ really need that the extra £380 in their pocket, or lack the financial sense to realise that could translate to £1000+ into a pension instead?

What does really annoy me though is the child benefit clawback. Firstly that £50k is hardly a "high income" as the name implies, but mainly that a couple earning £50K each (£100k houshold income) get to keep all the benefit, but a single income household with the sole earner making £60k get nothing. 

Strummer22

vacheron said:

What does really annoy me though is the child benefit clawback. Firstly that £50k is hardly a "high income" as the name implies, but mainly that a couple earning £50K each (£100k houshold income) get to keep all the benefit, but a single income household with the sole earner making £60k get nothing. 

Yes, I certainly understand Albemarle's post above highlighting that this is above the average wage (not 65%, not sure of the source of that claim as it's more like 35% per my post above). For someone working full-time on minimum wage or just above it seems ridiculous to think that £50k is not a high income. But when you get there, strangely enough it doesn't feel like high income. It's a difficult feeling to justify; obviously you're wealthier than someone on a lower wage, but depending on life circumstances you don't necessarily feel comfortable or well-off. 

That said, 2 earners on £50k each have much more take home pay than a sole earner on £60k. The whole concept is so distorted that it might just be easier to abolish the charge and make child benefit universal, and rebalance the tax take by incrementally higher taxes on higher earners (but without cliff edges).

MetaPhysical

£50k minus taxes and NI is *not* a high income in 2024, to say nothing of the fact that 40% tax starts to kick in at that level too.  If this ridiculously low threshold had kept place with inflation it would be around £67k.  That's is a lot more reasonable.

eskbanker

MetaPhysical said:

£50k minus taxes and NI is *not* a high income in 2024, to say nothing of the fact that 40% tax starts to kick in at that level too.

'High' is obviously subjective but those earning £50K or above represent the top 15% of taxpayers....

penners324

It's time RTI was changed so salary is submitted monthly on the fps. Then just abolish childcare for anyone on a salary of £50k+

zagfles

DullGreyGuy said:

Plenty of countries have higher tax rates than the UK... Belgium is on average 57% tax for earnings over €46,440 when you add the national and local income taxes, in some regions it's higher. In fact there are a lot of Western European countries with tax rates over 50% for higher earners when you add in the different components and for many higher earners is a lot lower than £100,000. 

You really have to look at the overall tax burden rather than the spot rate of certain amount of monies earned. Lets say you earned £110,000, assuming no other benefits etc that puts you on a take-home of £71,603 in the UK whereas Belgium it would be £52,527, Italy it would be £62,828, Sweden £58,592, Denmark £66,101, Portugal £59,329, Spain £67,899

So enjoy your lower working hours and the personal time rather than the 38% income 

How have you worked that out, what assumptions have you made? Most countries give income tax allowances for dependants eg spouse/children, or allow an earner to "attribute" income to a non-earning spouse so it's taxed as their income. Given the title of the thread it's likely the OP has dependants so you can't compare the UK's "independant taxation" system with the much more family friendly tax systems in other countries, and you can't work out how much tax they'll pay unless you know what dependants they have. Also many countries have tax relief for stuff like mortgage payments. 

Example from Belgium: Belgium - Individual - Deductions (pwc.com)

borris78

eskbanker said:

MetaPhysical said:

£50k minus taxes and NI is *not* a high income in 2024, to say nothing of the fact that 40% tax starts to kick in at that level too.

'High' is obviously subjective but those earning £50K or above represent the top 15% of taxpayers....

I see lots of comments like this and it really isn't as simple as this.
In the case of the child benefit tax, it is important to consider household income since most children live in a household with two parents/carers. £50k gross is under the median as a household income for a family. It is therefore not a high income. 
Secondly, the median household NET income for all households (with or without children) is about £33k which isn;t too far away from £50k after taxes. It is therefore absurd to say a £50k salary is high. As a salary it is higher than average but salaries are not the only form of income AND it is ultimately household income that matters especially for families. Someone on minimum wage can have a similar net income to someone on £50k due to things like universal credit being additional to the salary. 

borris78

zagfles said:

DullGreyGuy said:

Plenty of countries have higher tax rates than the UK... Belgium is on average 57% tax for earnings over €46,440 when you add the national and local income taxes, in some regions it's higher. In fact there are a lot of Western European countries with tax rates over 50% for higher earners when you add in the different components and for many higher earners is a lot lower than £100,000. 

You really have to look at the overall tax burden rather than the spot rate of certain amount of monies earned. Lets say you earned £110,000, assuming no other benefits etc that puts you on a take-home of £71,603 in the UK whereas Belgium it would be £52,527, Italy it would be £62,828, Sweden £58,592, Denmark £66,101, Portugal £59,329, Spain £67,899

So enjoy your lower working hours and the personal time rather than the 38% income 

How have you worked that out, what assumptions have you made? Most countries give income tax allowances for dependants eg spouse/children, or allow an earner to "attribute" income to a non-earning spouse so it's taxed as their income. Given the title of the thread it's likely the OP has dependants so you can't compare the UK's "independant taxation" system with the much more family friendly tax systems in other countries, and you can't work out how much tax they'll pay unless you know what dependants they have. Also many countries have tax relief for stuff like mortgage payments. 

Example from Belgium: Belgium - Individual - Deductions (pwc.com)

Agree with this. Again, it isn't as simple as pointing out other country's higher rates of tax when it's not comparing apples with apples. Better public services for a start, plus different allowances. This country have a plethora of direct and indirect taxes which puts the real rate of tax for someone on £50k close to 50%. You then have marignal rates of 60%+ for things like the child benefit tax.