djm4_lj: (Default)
To expand a little on my most recent tweet:

One thing the budget announced was to reduce the personal allowance of anyone earning over £100,000 at a rate of £1 for every £2 over £100,000 until completely withdrawn. This seems to have gone a little unnoticed by most commentators, and indeed I've had trouble finding links to the details of the plans, not least because they seem to have changed sine the pre-budget announcement. (It's section A8 in the BBC's complete budget report, but even this doesn't really give any more details.)

Now, I don't earn over £100,000, and am unlikely ever to. But I think this bears a closer look, particularly given the '50% Tax Rate!' headlines in pretty much every paper at the moment.

Let's say I'm earning £100,000, ad I get a £100 pay rise. £40 of that goes in tax immediately. However, I also lose £50 of my existing personal allowance, so now have to pay tax on it. Assuming I'm paying tax on it at the full 40% (and I admit I may be wrong on that, because I can't find any figures), that's an extra £20 of tax, which means that a full £60 of my £100 pay rise has gone in tax.

That's a marginal tax rate of 60%. (Even if I pay tax on the £50 at 20%, it's a tax rate of 50%). Which means that there's suddenly an extra tax band create for anyone earning between £100,000 and around £113,000. The UK tax bands will go:

* £0 - personal allownace: 0%
* personal allowance - £34,800: 20%
* £34,800 - £100,000: 40%
* £100,000 - £113,000: 60%
* £113,000 - £150,000: 40%
* £150,000 and above: 50%

It seems unfair that someone earning £110,000 should be taxed at a higher effective rate than someone earning £120,000, let alone someone earning £160,000.

Have I got my sums wrong, or missed something fundamental about how the income tax system in the UK works?

(This entry was originally posted at Feel free to comment there using OpenID.)


djm4_lj: (Default)

July 2015



RSS Atom

Most Popular Tags

Style Credit

Expand Cut Tags

No cut tags
Page generated Sep. 20th, 2017 01:50 am
Powered by Dreamwidth Studios