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

steves_uk

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?

If £15k (gross salary) went straight into a pension, assuming no other allowances, this would have the effect of keeping the marginal rate of tax at 40% and would preserve the Personal Allowance.