tatty

Marginal Tax Rate For Income £100,000 - £115,000

34 posts in this topic

I've been trying to work this out after a conversation at work the other day (doesn't affect me unfortunately).

I get it that for every £2 over £100,000 you lose £1 off your allowance of c£7500 which is why £115,000 is the upper level for this marginal rate.

What i'm not sure of is what the total tax take is.

1. Are you taxed at 20% or 40% on the c£7500 you lose?

2. Does employee NI stop at c£40,000 for 12% with 2% on everything above?

I've seen websites saying the marginal rate is 61.5% so i assume it works out as this:

40% of the £15,000 = £6000

40% of c£7500 = £3000

2% of £15,000 = £300

Total c£9,300 = c62% of £15,000

Is this right?

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And a supplementary:

Would contributions to a sipp or payments for a company organised green car lease scheme be deducted before you paid the c62% tax if the costs/payments were exactly £15,000 (assuming you were paid £115,000).

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40% of the £15,000 = £6000

40% of c£7500 = £3000

2% of £15,000 = £300

Total c£9,300 = c62% of £15,000

Is this right?

Yes, looks correct.

Plus 13.8% employees national insurance (although taken before you're left with you 'wage')

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Yes, looks correct.

Plus 13.8% employees national insurance (although taken before you're left with you 'wage')

I understood that NI is 2% over c£40,000 or are you saying you get hit for 12% on the £7,500 on top of the 40% income tax?

It seems pretty harsh to tax the allowance loss at 40% rather than 20%.

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I understood that NI is 2% over c£40,000 or are you saying you get hit for 12% on the £7,500 on top of the 40% income tax?

It seems pretty harsh to tax the allowance loss at 40% rather than 20%.

Sorry, I meant employer, not employee.

As far as I'm aware, there's no change for NI, so still 2%, but hidden on the other side, the employer has already paid 13.8%, which is really just income tax too.

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Sorry, I meant employer, not employee.

As far as I'm aware, there's no change for NI, so still 2%, but hidden on the other side, the employer has already paid 13.8%, which is really just income tax too.

Thanks, any ideas about the sipps etc being paid before tax/ni?

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recent hl article

http://www.hl.co.uk/pensions/sipp/tax-benefits-of-a-sipp/higher-rate-tax-relief

You could get up to 60% tax relief if you earn more than £100,000

The government takes away £1 of your tax-free personal allowance for each £2 you earn over £100,000. This means you will lose your tax-free personal allowance completely if your income exceeds £114,950.

Making a pension contribution will reduce your income for these purposes. Get it below £100,000 and you could claw back your full personal allowance as well as getting 40% tax relief on your contribution. This means up to 60% tax relief for those earning between £100,000 and £114,950.

Even if you earn above £114,950 you can claim your personal allowance back by making a SIPP contribution, in which case the tax relief you receive will be between 40% and 60% depending on how much you earn, which is still an extremely attractive deal.

You must pay sufficient tax at the additional or higher rate to claim the full additional or higher rate tax relief via your tax return. Remember tax rules can change over time and the relief you receive will depend upon your circumstances.

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You can calculate it more than one way, and it differs depending on how your income arises. The highest taxes are, as ever, on earned income.

My calculation says the marginal rate is 75.8% (for PAYE earnings).

Rationale: if you earn in that bracket and get a £1000 payrise, HMRC takes an additional £758.

The breakdown of that is:

£400 headline tax rate

£500 loss from personal allowance, taxed at 40% for another £200

£138 employer's National Insurance (the regular jobs tax).

£20 employee's National Insurance.

Total: £758.

Last year my taxable income would've fallen right into that bracket if I hadn't taken the avoidance measures it provokes.

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We may find that these avoidance schemes get revoked in the budget on the 21st of next month. If the rules don't change I'm planning "salary sacrifice" from April - the key thing to watch out for here is not to affect your entitlement to S2P.

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You can calculate it more than one way, and it differs depending on how your income arises. The highest taxes are, as ever, on earned income.

My calculation says the marginal rate is 75.8% (for PAYE earnings).

Rationale: if you earn in that bracket and get a £1000 payrise, HMRC takes an additional £758.

The breakdown of that is:

£400 headline tax rate

£500 loss from personal allowance, taxed at 40% for another £200

£138 employer's National Insurance (the regular jobs tax).

£20 employee's National Insurance.

Total: £758.

Last year my taxable income would've fallen right into that bracket if I hadn't taken the avoidance measures it provokes.

If your including the employee NI, then I should include that with my effective tax rates, pushing the 117% band up to 130.8%.

In your scenario the person could also be paying the 9% graduate tax too.

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If your including the employee NI, then I should include that with my effective tax rates, pushing the 117% band up to 130.8%.

In your scenario the person could also be paying the 9% graduate tax too.

I know that effective rates on very low incomes are the biggest outrage of all. But surely that only applies to incomes below the NI threshold? Once you're paying NI you're on an adequate income for the basics.

OK, I guess you're in the overlap band, with income that's adequate but still below the level of benefits for the 100%-lazy?

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I know that effective rates on very low incomes are the biggest outrage of all. But surely that only applies to incomes below the NI threshold? Once you're paying NI you're on an adequate income for the basics.

OK, I guess you're in the overlap band, with income that's adequate but still below the level of benefits for the 100%-lazy?

JSA + hb + ctb exceeds NI and 20% tax threshold.

So after JSA reduced @ rate of 100%, you face 85% (hb rate of 65% + ctb rate of 20%).

Hit NI and tax threshold. 65(hb) +20(ctb) +12(NI) +20(BR tax) +13.8 (employer NI) = 130.8%

And I wouldn't call £150 a week adequate when your rent is practically half that amount.

I need roughly 32 hours work/week to break free of benefits. After that the EMTR reduces to NI (12%) + tax (20%) + employer NI (13.8%) - 45.8%, until I hit SLC threshold and then you can add another 9% on.

This doesn't include work clothing or bus fares. (I also neglected the £5 income disregard - you can earn a fiver a week without being taxed upon it, consider it a 48 minute band of 0% tax at the start)

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JSA + hb + ctb exceeds NI and 20% tax threshold.

Yes, I realise that. Thanks for filling out the details that arrive at your effective rate!

And I wouldn't call £150 a week adequate when your rent is practically half that amount.

I'd call that very adequate. Positively rich by any historic standard (and doubly so if that rent gets you a room of your own)! Yes, it's near the bottom of the pile, but it's a lot better than what I had as a new graduate. Let alone later as proprietor of a business that was failing to generate revenue, when my effective tax rate was around 300%.

Don't give up! You may never be top of the pile, but you can work your way up to something middling!

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JSA + hb + ctb exceeds NI and 20% tax threshold.

So after JSA reduced @ rate of 100%, you face 85% (hb rate of 65% + ctb rate of 20%).

Hit NI and tax threshold. 65(hb) +20(ctb) +12(NI) +20(BR tax) +13.8 (employer NI) = 130.8%

And I wouldn't call £150 a week adequate when your rent is practically half that amount.

I need roughly 32 hours work/week to break free of benefits. After that the EMTR reduces to NI (12%) + tax (20%) + employer NI (13.8%) - 45.8%, until I hit SLC threshold and then you can add another 9% on.

This doesn't include work clothing or bus fares. (I also neglected the £5 income disregard - you can earn a fiver a week without being taxed upon it, consider it a 48 minute band of 0% tax at the start)

I'm well aware you are not old enough to qualify but on an income of £186.25 (net) per week would qualify for £90.72 Working Tax Credit (working 35 hours per week).

Edited by "Steed"

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I'm well aware you are not old enough to qualify but on an income of £186.25 (net) per week would qualify for £90.72 Working Tax Credit (working 35 hours per week).

Roll on July, I'm going to see my JC+ advisor about NEA today, so hopefully should be back working soon, and hopefully break free of benefits, or at least be better off than dole for the last 6 months of being 24. I might be working in your neck of the woods soon too, some work going in a quarry picking sandstone smile.gif

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Roll on July, I'm going to see my JC+ advisor about NEA today, so hopefully should be back working soon, and hopefully break free of benefits, or at least be better off than dole for the last 6 months of being 24. I might be working in your neck of the woods soon too, some work going in a quarry picking sandstone smile.gif

hehe I was in your neck of the woods yesterday. I crept over the border into the socialist republic of South Yorkshire, to Dunford Bridge, via Hade Edge silently by bike, to avoid suspicion. My mate lives at Stocksbridge. Not many border guards in them parts. wink.gif

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JSA + hb + ctb exceeds NI and 20% tax threshold.

So after JSA reduced @ rate of 100%, you face 85% (hb rate of 65% + ctb rate of 20%).

Hit NI and tax threshold. 65(hb) +20(ctb) +12(NI) +20(BR tax) +13.8 (employer NI) = 130.8%

And I wouldn't call £150 a week adequate when your rent is practically half that amount.

I need roughly 32 hours work/week to break free of benefits. After that the EMTR reduces to NI (12%) + tax (20%) + employer NI (13.8%) - 45.8%, until I hit SLC threshold and then you can add another 9% on.

This doesn't include work clothing or bus fares. (I also neglected the £5 income disregard - you can earn a fiver a week without being taxed upon it, consider it a 48 minute band of 0% tax at the start)

130% tax rate... Sounds like the government now has the real incentive to use every tricks to get people out to work then...

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Income tax basically works out as

<£7,475 0%

£7,475 - £42,475 20%

£42-475 - £100,000 40%

£100,000 - £114,950 60%

£114,950 - £150,000 40%

£150,000 + 50%

The middle 60% bracket is foolish and poorly thought through, but looks like it is here to stay. If you are in this bracket you won't get much sympathy from anyone earning less than you. The solution is to put the amount in excess of £100k in a pension.

On top of this you have to pay NI which is 2% for the 60% bracket, hence why people talk about a marginal rate of taxation of 62%.

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130% tax rate... Sounds like the government now has the real incentive to use every tricks to get people out to work then...

Not necessarily. The WTC can work out more than JSA.

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Income tax basically works out as

<£7,475 0%

£7,475 - £42,475 20%

£42-475 - £100,000 40%

£100,000 - £114,950 60%

£114,950 - £150,000 40%

£150,000 + 50%

The middle 60% bracket is foolish and poorly thought through, but looks like it is here to stay. If you are in this bracket you won't get much sympathy from anyone earning less than you. The solution is to put the amount in excess of £100k in a pension.

On top of this you have to pay NI which is 2% for the 60% bracket, hence why people talk about a marginal rate of taxation of 62%.

Bugger - I'm currently at £126k Gross and £114k taxable , but with 2 months to go - I'm going to have to stick some cash into my second pension, but I am not sure how to get the rest back off the Inland Revenue who had it via PAYE.

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Bugger - I'm currently at £126k Gross and £114k taxable , but with 2 months to go - I'm going to have to stick some cash into my second pension, but I am not sure how to get the rest back off the Inland Revenue who had it via PAYE.

Simply fill out a self assessment tax return and reclaim the extra 20% (pension manager will do the first 20% reclaim and put it in the pot).

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Not necessarily. The WTC can work out more than JSA.

Aye, it's also worth noting it's over bands of income...

So on a weekly basis for under 25 single adult in rented accommodation (Assume rent = 65, council tax = 20, U25 JSA rate of £53.45):

£0

----------- 0%

5

-----------100%

58.45'

----------- 85%

102

----------- 97% *(+13.8% if including employers NI = 110.8%)

145

----------- 117% *(130.8%)

158.45'

----------- 32% *(45.8%)

[Full time work = 37.5*6.08 = 228]

816.82

----------- 52% *(65.8%)

To include tax credits for a single male one would be 25+, so the (') bands would be increased slightly 67.50 to take account of normal rate JSA,, tax credits would kick in at 30hours (6.08*30= 182.40) paid at a rate of 1180/year = 22.70/per week, these are then withdrawn @ 41%.

Therefore for 25+ year single person in rented accommodation;

£0

----------- 0%

5

-----------100%

67.500

----------- 85%

102

----------- 97% *(+13.8% if including employers NI = 110.8%)

145

----------- 117% *(130.8%)

167.50

----------- 32% *(45.8%)

182.40 (WTC now paid as benefit at rate of on top of wage 22.70/week)

----------- 73% *(86.8%)

[Full time work = 37.5*6.08 = 228]

237.76 (WTC now withdrawn completely)

-----------32% *(45.8%)

816.82

----------- 52% *(65.8%)

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Income tax basically works out as

<£7,475 0%

£7,475 - £42,475 20%

£42-475 - £100,000 40%

£100,000 - £114,950 60%

£114,950 - £150,000 40%

£150,000 + 50%

The middle 60% bracket is foolish and poorly thought through, but looks like it is here to stay. If you are in this bracket you won't get much sympathy from anyone earning less than you. The solution is to put the amount in excess of £100k in a pension.

On top of this you have to pay NI which is 2% for the 60% bracket, hence why people talk about a marginal rate of taxation of 62%.

Could one of you smart people explain this for me please. say you earn 115.....the ideal is putting 15k into a pension to regain the personal allowance. Now that would mean "reducing income for tax purposes" - now this is the bit I dont understand - is it as simple as putting a 15k contribution into any old personal pension or does it need to be a special type of pension eg asalary sacrifice arrangement.

Thanks

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Could one of you smart people explain this for me please. say you earn 115.....the ideal is putting 15k into a pension to regain the personal allowance. Now that would mean "reducing income for tax purposes" - now this is the bit I dont understand - is it as simple as putting a 15k contribution into any old personal pension or does it need to be a special type of pension eg asalary sacrifice arrangement.

Thanks

It is easier if you can use a scheme sheltered from PAYEE which will typically be your work pension using salary sacrafice.

My new Tax adviser (i didn't have one before) says it not what you pay into your pension that determines the tax relief, but your highest rate of tax and then work in reverse as you use the allowance - which I kind of knew.

The question I still haven't fathomed is I can pay in a lump sum, but the so and soes at the HMRC still have a huge chunk of my gross income. The relief I'll get will most be at 40%, with half of that claimed back by the provider. I still haven't worked out what to do to get the 60% bit back, basically the challenge is I may be a lot closer to £150k than I'd thought, so I might have to stick a huge sum in to even get use of the 60% releif.

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