Tax increase as a percentage of earnings.

Benbear

We all the talk about fiscal drag due to static personal tax allowances I would like to know if I am alone in seeing the percentage increase from when I was working to what it is now that I am retired? When working my combined tax and national insurance deductions were around the 40% mark of my monthly earnings. Now that I am retired and have a reduced income from what I earned while working my total tax bill has risen to around 60% of my annual income. This seems strange because I no longer pay national insurance so the total increase in tax paid seems to be equivalent to a 30% increase. Some or maybe more of this increase will be due to fiscal drag and the rest must be due to reduced income. Is this, what to me seems like an excessive increase in percentage of tax paid quite normal or has something been missed on my part?

Isthisforreal99

Do you have state pension reducing your tax free allowance?

Benbear

I have a mix of company pensions, state pension, SERPs and Annuity but my tax allowance is the standard £12,570. I have been paying tax on my state pension since my first full year after retiring as the first year I was just under the £12,570.

Isthisforreal99

Are you factoring in that state pension when arriving at your 60% of income figure. Unless you have over £100k and no personal allowance then 60% tax on annual income shouldn't be possible.

Some figures would help.

Benbear

I am using my tax assessment calculation which includes all my income, tax paid and tax due. My calculation, which I may have misrepresented now I look at it again is based on earnings liable to tax after personal allowance is removed compared to total income. I have just compared my total tax due to total income and that figure as a percentage is 12% which looks correct and it was my error in using the wrong figures.

Keep_pedalling

Sounds impossible if your income is lower than when you were working. For a start you are not paying NI anymore, and even if your income exceeds 100k you can’t pay 60% on all of it. 

Benbear

Total income/tax on rounded figures: total in 32k, tax due on 19.6k and tax paid at 20% 3.8k.

Keep_pedalling

Benbear said:

Total income/tax on rounded figures: total in 32k, tax due on 19.6k and tax paid at 20% 3.8k.

Which is 11.9% of your total income, so why does your opening post say 60%?

Isthisforreal99

Keep_pedalling said:

Benbear said:

Total income/tax on rounded figures: total in 32k, tax due on 19.6k and tax paid at 20% 3.8k.

Which is 11.9% of your total income, so why does your opening post say 60%?

They have since admitted getting it wrong by taking the figure after the personal allowance was deducted.