How much exactly will I get (£100k tax trap)?

7sefton

Hello

I understand the principle of the tax trap above £100k but struggling with the maths. 

I earn exactly £100k. If I get a 15% bonus (£15k) and choose to just receive it in my salary, what will I actually get in pounds and pence?

thanks!

BikingBud

Try this: https://www.thesalarycalculator.co.uk/salary.php

Nomunnofun1

7sefton said:

Hello

I understand the principle of the tax trap above £100k but struggling with the maths. 

I earn exactly £100k. If I get a 15% bonus (£15k) and choose to just receive it in my salary, what will I actually get in pounds and pence?

thanks!

If you have absolutely no other income, £100k is your taxable salary and there are other mechanisms to reduce your adjusted net income such as pension contributions or charitable giving, the £15000 bonus will result in additional tax payable of £9000 and NI of £300. 

I assume you are not resident in Scotland. 

MetaPhysical

You will be totally shafted with tax at 62% on the extra above 100k unless you divert it into pension or otherwise reduce your NAI.

@Dazed_and_C0nfused is the master of this subject.

Grumpy_chap

The penalty for tripping over the £100k is even more severe if it results in the loss of tax free childcare.  The OP has not indicated whether that is a concern for them or not.

DoctorStrange

You'll keep 38% of it, so you'll get 5,700 pounds and zero pence. 

steves_uk

This site (http://salarytools.co.uk) is also handy for viewing tax bands for UK and Scottish residents. If you have a play with the salary slider, you can see how moving over £100k in income begins to shrink the 0% band and extend the 40% band which combined has the effect of the 62% tax trap often referenced.

Concretely in your example:
- £15,000 earned over £100,000 has the effect of reducing your personal allowance by £7,500.
- This £7,500 is now taxed at 40% instead of 0% (£3,000 tax deducted)
- The £15,000 you’ve earned is also taxed at your marginal rate (40%) (£6,000 tax deduction).
- Therefore an increase in salary of £15,000 over the £100,000 threshold increases your tax liabilities by £9,000, ignoring National Insurance and other benefit losses.

You’d do well to consider Pension Contributions at this point as a means of avoiding this problem.

MetaPhysical

.... and this is why highly paid and skilled people are reducing their hours to avoid paying these absurd marginal rates of tax.  How NOT to grow the economy.

sultan123

steves_uk said:

This site (http://salarytools.co.uk) is also handy for viewing tax bands for UK and Scottish residents. If you have a play with the salary slider, you can see how moving over £100k in income begins to shrink the 0% band and extend the 40% band which combined has the effect of the 62% tax trap often referenced.

Concretely in your example:
- £15,000 earned over £100,000 has the effect of reducing your personal allowance by £7,500.
- This £7,500 is now taxed at 40% instead of 0% (£3,000 tax deducted)
- The £15,000 you’ve earned is also taxed at your marginal rate (40%) (£6,000 tax deduction).
- Therefore an increase in salary of £15,000 over the £100,000 threshold increases your tax liabilities by £9,000, ignoring National Insurance and other benefit losses.

You’d do well to consider Pension Contributions at this point as a means of avoiding this problem.

If the 15k went straight into pension, there is no issue then?

Dazed_and_C0nfused

sultan123 said:

steves_uk said:

This site (http://salarytools.co.uk) is also handy for viewing tax bands for UK and Scottish residents. If you have a play with the salary slider, you can see how moving over £100k in income begins to shrink the 0% band and extend the 40% band which combined has the effect of the 62% tax trap often referenced.

Concretely in your example:
- £15,000 earned over £100,000 has the effect of reducing your personal allowance by £7,500.
- This £7,500 is now taxed at 40% instead of 0% (£3,000 tax deducted)
- The £15,000 you’ve earned is also taxed at your marginal rate (40%) (£6,000 tax deduction).
- Therefore an increase in salary of £15,000 over the £100,000 threshold increases your tax liabilities by £9,000, ignoring National Insurance and other benefit losses.

You’d do well to consider Pension Contributions at this point as a means of avoiding this problem.

If the 15k went straight into pension, there is no issue then?

You would have to remember if has used part of your annual allowance limit.

400ixl

Is the £100k before any pension contributions and if so, are any of those salary sacrifice?