This is right. The tax free allowance is before the 20% band so you need to add them together to reach the threshold for 40%. £42k.
Tax query...
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This is right. The tax free allowance is before the 20% band so you need to add them together to reach the threshold for 40%. £42k.
I guess it all depends on how you want to add it up if you combine the tax free allowance.
EDIT: Yeah dumb moment
*brains not werking*
Super pedantic time, but if you are earning over £100,000... you aren't paying 0% tax on the first ~£10.5k you earn because your personal allowance (the 0% bracket) gets reduced by £1 for every £2 over £100,000 you earn. Just saying
That's a recent addition, which they haven't adjusted their conventions for (probably because it's really a 60% tax rate for earnings £100k-120k, but 60% is a bit of an eye-popping rate so they show it as a clawback instead)
Soldato
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How is it a 60% tax rate? Even if you are thinking that £10k is 10% of £100k and by losing it you are adding it back on to the top rate (which is incorrect mathematically anyway) that would be 55% (as the top rate is 45p and not 50p as it used to be and doesn't kick in until 150k).
Besides, I wouldn't feel too bad for them, someone on £120k with no allowance only actually pays around £41k in income tax (or nigh-on 35%)
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I think he means something along the following lines.
Say you earn £100,002. For the £2 over the £100k you are taxed 40% on £2 and an additional 20% on £1 in respect of your personal allowance deduction.
So it's more like a 50% rate, by my calculation! But really that's an 'comparative equivalent' rather than a true 50% rate.
Edit: Ah have I deducted my personal allowance incorrectly? Probably
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No, it is 60%, it's the marginal rate of tax between £100k to PA withdrawal. It makes calculating tax liabilities easier (you're taxed on more income at 40%, you get the same amount taxed at 20% which is where your maths is going wrong).
Yep, duly noted. A long time since I did my exams, forgive me
I had to think about it again as well, I don't deal with personal taxes normally
I had to think about it again as well, I don't deal with personal taxes normally
Going turbo geeky, it always amused me the most when dealing with roll-over relief, one of the very few qualifying classes of assets is 'satellites, space stations and spacecraft'. Best that gets a lot of use
Going turbo geeky, it always amused me the most when dealing with roll-over relief, one of the very few qualifying classes of assets is 'satellites, space stations and spacecraft'. Best that gets a lot of use
That's because most assets you can think of fall under class 1 assets
Soldato
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Then please tell me where I'm going wrong because I still can't see how you can say that people are paying 60% in tax between 100-110k.
Look at this....
On the left is what you'd pay if no PA fade out existed (on a 102k salary as per Nitefly's example). On the right is how it currently is. So the amount you pay over £31k doesn't change (40%), but you marginally pay more at the 20% band.
Comparing the two totals the difference is 0.0006%, virtually nothing. I don't see where you're getting this 15 percentage point rise from????
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You deduct your personal allowance from your total income first, then tax at the relevant percentages. This means your taxable income increases as your personal allowance decreases, so the increase will always be in the 40% bracket.
Assuming personal allowance ("PA") is £10,000
Income: £100,000
Less PA = Taxable Income: £90,000
Tax: £20k at 20%, £70k at 40%
Income £105,000
Less PA = Taxable Income: £97.5k
Tax: £20k at 20%, £77.k at 40%
So you are earning £5,000 more, but are taxed an additional £3,000 = 60%
Assuming personal allowance ("PA") is £10,000
Income: £100,000
Less PA = Taxable Income: £90,000
Tax: £20k at 20%, £70k at 40%
Income £105,000
Less PA = Taxable Income: £97.5k
Tax: £20k at 20%, £77.k at 40%
So you are earning £5,000 more, but are taxed an additional £3,000 = 60%
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Then please tell me where I'm going wrong because I still can't see how you can say that people are paying 60% in tax between 100-110k.
Look at this....
On the left is what you'd pay if no PA fade out existed (on a 102k salary as per Nitefly's example). On the right is how it currently is. So the amount you pay over £31k doesn't change (40%), but you marginally pay more at the 20% band.
Comparing the two totals the difference is 0.0006%, virtually nothing. I don't see where you're getting this 15 percentage point rise from????
The 20% band doesn't increase in size.
Oh, and marginal tax rate is different to effective tax rate.
Caporegime
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This thread proves why a good accountant is worth every penny !
And could be costly in the process xD
Soldato
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Ok, I messed up on how the PA worked in my first example. I get that now, and I agree you don't pay any more in the 20% bracket as it only applies to the 40 but still can't agree with your figures ATM. Plus you (nitefly) say you are taxed 20% on 20k but band goes up to 31,865 which means you'd be paying less in the 40% bracket than is stated in your example.
I find it easier to compare the current system with one that doesn't include a PA withdrawal scheme. So
If no PA Withdrawal existed
Income: £105,000
Less PA (£10k) = Taxable Income: £95,000
Tax: £31,865k at 20%, £63,135 at 40%
Amount paid @ 40% rate = £25,254
As it stands
Income £105,000
Less PA (£7.5k) = Taxable Income: £97,500
Tax: £31,865k at 20%, £65,635k at 40%
Amount paid @ 40% rate = £26,254
So as it stands you are paying 3.95% more than you would due to the withdrawal system. Or another way of putting it you are paying £26,254 (with withdrawal) on what could be £63,135 (without withdrawal) making rate of 41.58%.
I don't see how the PA withdrawal can ever equal a 15 percentage point hike.
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