It looks like the highest tax bracket in the UK is at 45% and starts above 150k GBP.
On 150k GBP you would pay max 40%. Buuut let's say you make 200k,then some falls into the 45 bracket.
£83,934 taxes or an average tax rate of about 41.9%
On 150k GBP you would pay max 40%. Buuut let's say you make 200k,then some falls into the 45 bracket.
£83,934 taxes or an average tax rate of about 41.9%
Until then, I googled again and using this now, which should of course be up-to-date, shouldn't it (tax year 2022):
https://www.tax.service.gov.uk/estimate-paye-take-home-pay
Entering 150k, the result is Your estimated take-home pay for 2022 is £96,053 a year or in other words a 35.9% average tax rate.
It even specifically says on the bottom: Your tax-free allowance is £12,570
The 60% that is discussed is the marginal rate in the band from £100k to £125k, not the average tax rate on all the income. It means: for each increase of £1000 in your earnings when your income is in that band, you pay £600 more tax.
The original post I replied to first however does not seem to be aware of it. To quote the relevant part again:
their ass to break 100k when they're getting a 60% tax bill.
That is specifically why I quoted the average tax rate too and not just the marginal rate. Now of course, w/ the reduction of the tax free amount at those incomes coming into effect, yes, in comparison to some other countries (and apparently previous rules), you do get taxed quite high. Now let's compare.
100k GBP ~= 166k CAD
Canada, cheapest province - Alberta. Average tax rate ~31%, marginal tax rate ~42%
Canada, expensive province - Quebec. Average tax rate ~38.5%, marginal tax rate ~50%
150k GBP ~= 250k CAD
Canada, cheapest province - Alberta. Average tax rate 35.4%, marginal tax rate 47%
Canada, expensive province - Quebec. Average tax rate 42.8%, marginal tax rate 53.3%
The only rate that really matters for what you have in your pocket in the end is the average tax rate. You could have a country with a 99% marginal tax rate in the highest bracket but a bracketing system in which 99% of the population never reach that bracket, so quoting the marginal rate is not very helpful except if you want to complain about taxes - or you make the 150 million at which that marginal rate might apply in this fictitious country ;)
While we're at comparing, Germany, a country with high taxes that 150k GBP is about 170k EUR and results in an effective tax of 43%.
Since apparently the government calculator is wrong for the UK and I only find broken ones myself, can you calculate the above w/ one that does things correctly and post for comparison?
As we said your marginal income tax rate goes to 60% until you start making £125K, when it drops to 45%. If you consider NI and student loans, your tax marginal tax rate could approach 70% in that bracket. At 100K you lose some means tested benefits, for instance free childcare, that in London may be worth in excess of £1500 per month. It means that somebody with a child making £100K is poorer than somebody with a child earning £75K (1500*12=18000 after tax, so 30K before tax at a 40% marginal tax rate).
In a place where the most miserable 2-bedroom flat cost in excess of 500K and where the average rent is £2400 per month, 100K a year, which is 5.5K a month after tax, doesn’t make you rich by any stretch of the imagination. You spend 70+% of your income on rent and childcare. Let us not get carried away with silly comparisons with millionaires.
In Germany your tax expenditure changes depending on you tax class. A married couple with children may end up paying much less taxes than in the UK (I for instance would pay ~£500-800 less a month).
Like I mentioned, marginal tax rate comparisons are often flawed and not helpful. If you are correct about your marginal tax rate changing to 60%, it still only means 25k have 60% taken. It still sucks of course but your "tax bill" isn't going to be 60%.
Let's take your "disastrous" example of making one extra pound on top of 99,999 GBP.
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000.
So let's assume this does things correctly (unlike the government's own) https://www.uktaxcalculators.co.uk/ and input the numbers.
Ah yes, it seems to do it:
Gross Income: £100,000
Allowance: £12,570.00
Net income: £66,322.92
Average tax rate: ~33.6770%
Gross Income: £100,002
Allowance: £12,569.00
Net income: £66,323.67
Average tax rate: ~33.6776%
Let's look at the other end:
Gross Income: £125,000
Allowance: £70.00
Net income: £75,640.66
Average tax rate: ~39.487%
Gross Income: 208,000
Net income: 122,953
Average tax rate: 40.89%
Marginal tax rate: 49.96%
Do keep in mind of course that all of this is without taking into account various family or work situations in either case. Especially in said expensive province of Quebec, child care services are available in various ways like you describe for the UK. E.g. the 9$ per day day-care spots where the price also goes up with your income level, so the same kind of calculation you made for the UK could be made there. The more you earn, the more of your own money you have to use. In a province like Alberta, where your average tax for the above 208k is only around 33% you don't have day-care spots like that and will pay a lot more money for said services. Things like pension payments reduce your income before being input into this calculation. I.e. you could earn 250k CAD but put 42k into an RRSP and you'd end up back at the exact same calculation as above with 208k of taxable income.
To add insult to injury the government also collects taxes on purchases. VAT.
And there's a 'national insurance' tax which is 13% paid by employer before even getting to your gross pay, primarily so that the tax levels look less horrendous. That's extra to the identically named 'national insurance' tax paid by employees, though that at least drops to 2% past some threshold.
100 is also the cut-off point for a weird scheme described at https://www.gov.uk/30-hours-free-childcare which seems to be £2k per child for a couple of years.
So if you're a graduate looking at making it past 100 with a kid in that bracket, marginal rate of 71% (40 income, 2 national insurance, 9 student loan, 20 personal allowance disappearing), to catch that 2k loss you have to get up to about £107k. There might be other similar schemes that I haven't heard of.
And that's before we start looking at other taxes, of which stamp duty is easily the one that annoys me the most but fuel duty probably the most expensive day to day. Pretty sure I've forgotten some too. The almost mandatory pension contribution that I expect to disappear in smoke at some point is a similar thing.
Sadly the up front number of 20% income tax is the one people hold onto while saying the UK is a low tax country. Even when their paycheck says something different.
Most people start avoiding having a take home pay of over 100k for this reason unless they’re in one of the few jobs where they earn far and above over 120~k.