Higher Tax Rate at 40k ?

Heytheremrblue

I’ve just received a letter from HMRC saying my tax code has changed but on the notes it says …. If your total income and taxable state benefits for the year are more than your tax free amount then you will pay as follows : 20% up to £37700 and 40% between £37701 and £125140…… I thought the 40% tax rate kicked in at 50k ? If that’s the case I might as well retire now !

booneruk

£50,271 (40% tax bracket) minus £12,570 (personal allowance) = £37,701

Your taxable income under £37701 is taxed at 20% (I think! I'd be happy to be corrected)

k6chris

Heytheremrblue said:

I’ve just received a letter from HMRC saying my tax code has changed but on the notes it says …. If your total income and taxable state benefits for the year are more than your tax free amount then you will pay as follows : 20% up to £37700 and 40% between £37701 and £125140…… I thought the 40% tax rate kicked in at 50k ? If that’s the case I might as well retire now !

Need to add the first £12,570 of earned income which is nil-rate.  Poor wording.

Heytheremrblue

Ignore me schoolboy error 

Heytheremrblue

Thanks classic post before Google !

mebu60

Heytheremrblue said:

I’ve just received a letter from HMRC saying my tax code has changed but on the notes it says …. If your total income and taxable state benefits for the year are more than your tax free amount then you will pay as follows : 20% up to £37700 and 40% between £37701 and £125140…… I thought the 40% tax rate kicked in at 50k ? If that’s the case I might as well retire now !

= personal allowance and anything else e.g. gift aid.

surreysaver

Probably the way they've worded the letter. Made an assumption that everyone knows what they're talking about 

Heytheremrblue

surreysaver said:

Probably the way they've worded the letter. Made an assumption that everyone knows what they're talking about 

  I certainly don't  !!

Aretnap

k6chris said:

Heytheremrblue said:

I’ve just received a letter from HMRC saying my tax code has changed but on the notes it says …. If your total income and taxable state benefits for the year are more than your tax free amount then you will pay as follows : 20% up to £37700 and 40% between £37701 and £125140…… I thought the 40% tax rate kicked in at 50k ? If that’s the case I might as well retire now !

Need to add the first £12,570 of earned income which is nil-rate.  Poor wording.

ISTR that the wording is largely a hangover from the days when your personal allowance depended on your age (and possibly a few other factors). The first £X was taxed at 0%, the next £Y was taxed at 20%. X varied significantly from person to person so there was no "higher rate threshold" that applied across the board, so the amount that basic rate was levied on was always quoted as £Y.

It's actually still relevant if you have a non-standard personal allowance, eg if a non-working spouse has transferred some of their PA to you then the 40% tax band will start at more than £50,271.

Dazed_and_C0nfused

Aretnap said:

k6chris said:

Heytheremrblue said:

I’ve just received a letter from HMRC saying my tax code has changed but on the notes it says …. If your total income and taxable state benefits for the year are more than your tax free amount then you will pay as follows : 20% up to £37700 and 40% between £37701 and £125140…… I thought the 40% tax rate kicked in at 50k ? If that’s the case I might as well retire now !

Need to add the first £12,570 of earned income which is nil-rate.  Poor wording.

ISTR that the wording is largely a hangover from the days when your personal allowance depended on your age (and possibly a few other factors). The first £X was taxed at 0%, the next £Y was taxed at 20%. X varied significantly from person to person so there was no "higher rate threshold" that applied across the board, so the amount that basic rate was levied on was always quoted as £Y.

It's actually still relevant if you have a non-standard personal allowance, eg if a non-working spouse has transferred some of their PA to you then the 40% tax band will start at more than £50,271.

Only for tax code purposes.  When your actual liability is established after the end of the tax year you would only get the standard Personal Allowance and basic rate band.

But then you get £252 knocked off whatever you liability is.

BreakingGlass

Heytheremrblue said:

I’ve just received a letter from HMRC saying my tax code has changed but on the notes it says …. If your total income and taxable state benefits for the year are more than your tax free amount then you will pay as follows : 20% up to £37700 and 40% between £37701 and £125140…… I thought the 40% tax rate kicked in at 50k ? If that’s the case I might as well retire now !

Do you earn over £125k?

From HMRC site:

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.