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Comment by alias_neo | Hacker News Reader

> Having UK work experience and having talked to thousands of british folks over a decade, I find this hard to believe

I only have to look as far as my own wallet to see the effects. I'm being taxed to the eyeballs while there is a glass ceiling preventing me taking any more pay home without a major jump which just isn't coming due to stupid tax rules keeping the working class from bumping into the middle class.

I see mine and my family's living standards drop only to be told by the news that I'm a likely target for more tax hikes, and there's just no room to tax me more while my bills have also gone up significantly, and something will have to give. If it gets to the point where I can't pay my bills despite being a "high earner" I'll have to start considering whether I leave with my family, and where to.

I'm not exactly the milky bar kid, but I imagine beyond my friends and family, I imagine the consensus would be very much the same, yet there goes two "successful" professionals and the children we were raising probably to be high earning professionals too.

I don't do social media, but I do keep on top of the news from all outlets, I try to look beyond the biases and form an opinion on a combination of sources.

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I left in 2010 and the consensus is very much the same among my friends, or at least some of them anyway.

I’m no longer eligible to have an opinion UK or local conversations. “how would you know”, “the city’s changed a lot since you left”, “why are people who chose to leave so interested in X”, statements specific to ex-pats.

For those from outside the UK, ex-pat (expatriate) as a singular term is almost always derogatory regardless of context or publisher.

It's kind of wild how people can't accept that anyone would want to leave the UK, plenty of people come here, they're leaving other places, so this must be the best place in the world.

If you don't like it you must be foreign; I'm not, I was born and raised in England to British parents. Nowhere did I say I was even planning to leave, I merely suggested that if things got worse I might have to consider it, and I was jumped on for that.

Things ARE getting worse, but I'm not at that point yet, maybe we'll have a miraculous turn around and our public services will improve and our economy will grow, I'm not even asking for it to be sunny for 3 months of the year, but if they don't, am I just supposed to sit here on a sinking ship with my children next to me?

And let's be real, it's not even about me at this point, it's about what is and what will be for my children, I've worked hard to give them a better life than I had as a kid, and I'll be damned if I don't do it.

I believe the issue people have with the term ex-pat is that it sounds like a fart-sniffing variation of "migrant" (or the derivatives "emigrant" or "immigrant").

> earn a penny more

That is not how marginal tax rates work. Each income band is taxed at the rate for that band. It’s why it’s called “marginal” - because the rate change happens at the margin between brackets.

You are taxed 0% on your first £12571. You are taxed 20% on your next £37669, or, £7359.80 on £50270 of income. If you then earned one more pound, or £50271, you would owe £0.40 (40%) on that one additional pound only, for a total of £7361.20. There is no income stage where earning more money has you taking home less.

> There is no income stage where earning more money has you taking home less.

there are several

there's one at around 50k (where child benefit is removed) and another at 100k (where childcare vouchers are removed)

Yes exactly at 100k you lose free childcare. It’s not a taper you lose the whole thing.

Here’s an explanation of the figures:

https://www.thetimes.com/business-money/money/article/high-i...

Yes, once you go from 99,999 to 100,000 you lose 2000 per pre-school aged child you have and have to file your own tax returns for the privilege despite being PAYE.

The latter is no longer true

Also at £100k you start to lose your tax-free personal allowance. The commitment of successive governments to avoid raising taxes on "ordinary working people" has created a bizarrely inconsistent tax regime for above-average earners, where people earning £65k could end up paying a much higher marginal rate than people earning £165k.

https://taxpolicy.org.uk/2024/10/17/reform-income-tax-end-th...

How many preschool age children do you have?

Annoying that those are, it’s probably more accurate to say you don’t qualify for benefits when you earn considerably more than the median wage (£38k).

Also, if you’re paying a decent amount in to your pension your effective salary is lowered and won’t hit that child benefit threshold until your salary exceeds £60k or more, and you still get to keep all of that money.

Tax free childcare is already extremely lacking in my opinion, if you want professionals to work, it shouldn't be extortionate to have your children in nursery, and costing you 2000 per child per year for one parent earning 100,000 when two parents can earn 99,999 each is also ridiculous.

The real kicker is the 99,999->100,000 trap where you lose all tax free childcare care allowance, £2000 per year per child, it's assessed quarterly, and if you exceed it by a single penny, not only do you lose it, they also demand immediate repayment of all childcare allowance so far that year.

>>they also demand immediate repayment of all childcare allowance so far that year.

So this might or might not be in line with official guidance but I was exactly in this situation and I expected to earn around £99k last tax year then I was given an unexpected £4k bonus in my march salary, and I wasn't told about it until it was in my account already so it was too late to put it into pension. I asked HMRC about it and they said as long as I was being truthful at every quarterly questionnaire where they ask if you expect to make over £100k and I told them the situation changed as soon as I became aware of it I don't have to pay anything back for the free childcare hours. I asked my accountant and she said since I have it in writing it should be fine(but HMRC can always change their mind so who the hell knows).

Compare that to the insane situation of the benefit for carers where people are being asked to repay benefits going back years if they went over the threshold by a single pound - I imagine HMRC is being incentivieed to go after benefit takers more than other areas like childcare hours, for various more or less political reasons.

That sounds extraordinarily linient of them, but I suspect as you say, it's political.

I take it you lost your allowance for the rest of the year due to the bonus?

Luckily for me the childcare tax people contacted me about it the first time it could have become an issue because I received a bonus at the start of a tax year, so I adjusted my pension contributions for the rest of the year lowering my take home. By this point though I'd already been taxed that marginal 60% thanks to the bonus being paid to me, like yourself without being notified.

> That sounds extraordinarily linient of them, but I suspect as you say, it's political.

knowing HMRC it's because they can't figure out how to work it out

at least without giving infosys/fujitsu a couple of hundred million quid

It's a classic result of step functions, which are popular in tax codes and regulations.

For example, if you pollute 99 ppm, then you're good. If you pollute 100 ppm, you're bad.

I once half seriously proposed a limit on the second derivative of effective rates like this but imagine explaining that to a politician these days...

Don't quote me but I don't think this is quite true if you take tax credits and other "benefits" into account - especially when it comes to child support.

That is only true of income tax. Not all taxes are marginal, and several have thresholds that behave exactly as the OP described.

The people arguing only seem to care about income tax and NI, ignoring that other taxes exist at almost every level on your money.

Moreover they generally make the argument, have marginal tax rates explained and then rapidly go off looking for some specific welfare policy where this is sort of true.

Because if they knew about the welfare policy before they started typing, they would've actually mentioned it then - it's a specific problem, with several obvious solutions (i.e. don't means test at all or taper off more gently) unrelated to the concept of tax brackets (and potentially not related to the actual bracket index values themselves.

> There is no income stage where earning more money has you taking home less

If you go from £99,999 to £100,000 and have pre-school aged children, you lose £2000 in tax-free childcare per child. If you have 2 children, that extra penny cost you £4000, 3 children, £6000, you take home less, fact.

Combined with the 60% marginal rate, you now have to get to £110,000 just earn the same you did at £99,999 and then there's the side point that a couple can earn £99,999 each, or £198,999.98 and still benefit from it while any single parent who hits £100,000 loses it completely, so a single parent high earner loses out vs a couple. I'm not a single parent but that doesn't seem reasonable to me.

EDIT: and that person who hit £100,000 has the extra burden of having to file a tax return from now on simply because they hit an arbitrary number, and despite being on PAYE, though perhaps some people love doing tax returns, so not necessarily a negative point.

https://www.gov.uk/tax-free-childcare

> If you go from £99,999 to £100,000

That's not where I would say the line between working class and middle class should be drawn.

> taxed to the eyeballs

Emotional phrases aside, what is your total NI + income tax deduction percentage, and what percentage do you think you should be paying?

The problem isn't the percentage, it's that there are tax traps where earning a single penny more end up in you taking home thousands less, then you hit a marginal tax bands of 60%+, and suddenly you have to earn tens of thousands more just to break even.

They're well known an documented, but I'm sure you know that already.

That is not how marginal tax works. Marginal tax is… uh… tax on the marginal part?

It is funny you say these are well known and documented, yet provide no links or sources.

Apologies, I thought "well known and documented" implies it should be easy to find", but here you go:

https://www.gov.uk/income-tax-rates https://www.gov.uk/tax-free-childcare

For other readers who don't want to go through that:

Say you earn £99,999 and get a pay rise to £100,000 and have two pre-school aged children, you lose £4000 (£2000 per child) per year, so you now earn less.

Now for the next ~£25,140 you earn you'll pay an effective tax rate of 60%, so from £99,999 you first have to hit ~£110,000 to break even, then it's ~60% tax up to £125,140, then beyond that it's 45%.

But also it's a childcare tax credit? Like you will only receive this in it's total value for maybe 4 years assuming you have two very close in age kids, and then lose it entirely 1 year later because they would both have started primary school.

And you wouldn't be receiving it at all if you didn't have children.

Like I would choose to not means test such a policy were in charge, but it's also got nothing to do with marginal tax rates - it's why liberals like me generally oppose means tested welfare policies (because it costs more to deliver and tends to deliver less).

Yes, I think you're spot on there.

You also don't have childcare costs once they go to school, so the loss of that outgoing makes up for the loss of the tax credit.

I'm also liberal, and I think that everyone should be given the child tax credit, if the government wants you to work, and earn, and have children (it does), the tax credit is an effective way to help everyone work harder and earn more.

The issue I've been trying to describe, is that after you've already had children, and you then hit 100k, you lose it entirely, making you 2k per child worse off, so let's say you get to 100k, and you already have two children in childcare, you lose 4k, then you get a pay rise to 110k, with the loss of the 4k and at the same time you also hit a marginal tax rate of 60%, you now earn exactly the same as you did at 100k.

If you got a with-inflation pay rise every year from 100k onward, you'd be earning less for almost all of that time until those children go to school.

Lowering the higher band threshold to 100k from 125k and not tapering the personal allowance would actually leave you better off.

EDIT: Typo in my numbers (100k > 110k).

This has nothing to do with marginal rates and everything to do with weird means based credits though.

That said, I agree that is pretty stupid.

The only connection to marginal tax rates is that the pay bands line up though?

Can't help but noticed that you didn't answer the question. It's so good: https://news.ycombinator.com/item?id=44712327

I'm not familiar with the UK tax system but the usual solution is to have progressive (?) tax bands. Example:

On the part from 0 to 1000, no taxes

1001 to 10000, ten percent

10001 to 20000, twenty percent

20000 to 30000, thirty percent

30001 and more, forty percent

So if you were earning 29000 and get a raise to 31000 those 29000 are still taxed as they used to and the extra 2000 are split among the two bands around 30k.

Yes, except like many others have pointed out there are thresholds where you lose certain tax credits and benefits, so it's entirely possible to make £1 more but lose multiple thousand(for example if you're a parent and you go from making £99,999 a year to £100k a year)

You are right. Those are common in my country too.

Can you provide an example for others? I know I often hear this complaint here in Canada about entering a new tax bracket, but the reality is that only the money earned above the bracket's lower bound is taxed at that higher rate (if the bracket is $10k and you make $10,001, only that $1 is taxed at that higher brackets rate), and so I'm wondering what the UK is doing differently.

Edit: Ah, there's a baseline personal deduction (12.5k) that disappears between 100-125k, meaning, for that narrow band, every dollar earned in that range has a higher effective tax rate due to that deduction slowly disappearing. It's still progressive, so you don't suddenly start paying 60% tax on everything.

https://www.brewin.co.uk/insights/earn-over-100k-beware-the-...

See another comment of mine that also shows how going from 99,999 to 100,000 also costs you 2000 for each pre-school aged child you have per year meaning you actually earn thousands less, and to top it off, you now also have to do your own tax returns because you hit 100,000 despite being PAYE.

EDIT: it's interesting that anyone genuinely asking and trying to understand is getting downvoted as opposed to anyone who just disagrees with me.

For those in the US: the UK tax return (actually a partial return and declaration of income) takes 10 minutes. It’s all done online. There are no complicated calculations, you just declare your income, investment income, interest and other sources, minus any tax already paid. You don’t need an accountant and there are no costs for filing.

If it takes you only 10 minutes to declare all your "income, investment income, interest and other sources" then you're either lying or doing taxes wrong. It takes me more than 10 minutes just to download all the tax slips, let alone totalling them up.

I'm in the pay bracket requiring annual self assessment and 10 minutes is probably too generous, purely because you log in to your SA account and the PAYE section from your employer is already pre-filled. You don't need to look at your pay slips, HMRC already has all the info from your employer and literally all you need to do is have a cursory glance whether the numbers look right then click confirm few times and submit at the end.

Obviously very different if you're self employed or have income mostly from investments or properties, but the you have an accountant to do it for you.

The person I responded to was referring to US taxes.

No, I was talking about the amount of time it takes to fill in an high-earner income declaration in the UK, which you only need to do if you are indeed a high earner or have multiple sources of income, and it is not anywhere near as arduous as a full tax return (either in the UK or the US).

Oops you're right.

I edited my post to make it clearer. It was more ambiguous before.

I've been doing UK self assessment tax returns every year for over 15 years. It really does just take 10-15 mins for people that have one job (as an employee) and typical investments - savings accounts, shares, etc.

The income numbers are already there and if I want to check it's easy: my employer gives me a form with the same numbers in the same numbered boxes. I just need to specify how much income I had from bank interest.

The tax witholding system usually works as well - the main exception being straight after starting work for the first time or changing jobs, when you can have a temporary code. In these cases I just called HMRC and told them what was going on. The employer gives my pay numbers to HMRC and HMRC give my employer a tax code that determines how much to withhold each month.

You don't need an accountant because you already know they took almost all your money!

Having to do your own tax returns is funny to hear as a North American, we always have to do them.

I struggle with the child tax credits. If I'm childless and move from 99,999 to 100,000 it doesn't change my situation at all. I don't think we can view that in the same light - it's a tax credit benefit, but it's not just a matter of earnings. The goal is to support lower income families, so the line has to be drawn somewhere, and whether it's gradual or not someone is still going to complain about it going away.

> I struggle with the child tax credits. If I'm childless and move from 99,999 to 100,000 it doesn't change my situation at all. I don't think we can view that in the same light - it's a tax credit benefit, but it's not just a matter of earnings. The goal is to support lower income families, so the line has to be drawn somewhere, and whether it's gradual or not someone is still going to complain about it going away.

Having it go away is less of a problem than having it go away all at once. If it was phased out over a range of incomes such that every marginal dollar of gross is still a marginal increase in net, that'd solve the problem mentioned in this thread. Key property of a tax system: the function from gross income to net income should always be monotonically increasing.

To be fair, the original topic of this thread was "tax traps", one of the most famous in the UK being a gradual decrease of benefit that was still a marginal increase in net, but it was still deemed worth complaining about.

Yeah, to some extent it's also important that the marginal tax rate should always be monotonically nondecreasing. But that's not quite as critical as the marginal tax rate never being above 100% (including all accounting for loss of credits/deductions).

It comes at a problematic point where at 100,000 you also lose your personal allowance. It means that when I received a pay rise from whatever to exactly 100,000 I lost £4000 in tax-free childcare meaning I actually earned less.

Nobody is expected not to use it if they earn below the point it is taken away, it's just an arbitrary tax on parents who earn 100,000, while at the same time a few other paper cuts are piled on.

I know Americans always do tax returns, sounds like a pita for you guys, and I believe until recently you had no choice but to use some sort of service and couldn't DIY it?

Here if you're PAYE (salaries), it's dealt with on your behalf, the tax is deducted before you're paid and you don't have to deal with it, unless you're self employed. It's not necessarily a huge issue, but it's a time cost and that has to have a price, and if you get it wrong, HMRC are notoriously hard and will demand full payment immediately, if you're lucky and they accept your "excuse" (their word), they might let you split it over 3 months.

At this point it's best to make sure you have £10,000+ in savings aside just in case.

I've not had to do a tax return yet, but I've frequently seen tax bills in the tens of thousands from family and friends because their accountant got it wrong, and holds no liability.

I don't think it's as big an issue for me people have taken from my original wording, that's fine, poor choice of words on my part perhaps, but it has certainly been blown out of proportion including some minor jabs at me and (incorrectly) at my political leanings etc. Despite this really all having nothing to do with politics or news and quite clearly as I pointed out at it's direct effect on my family finances.

As the saying goes here in England, "I'm sorry I mentioned it".

> it's just an arbitrary tax on parents who earn 100,000

This seems to be me to be a weird framing. It's a tax benefit for parents that's taken away when you hit £100k. When you hit £100k you don't face an arbitrary tax, instead you're now playing by the same rules everyone else is. You're in parity with your child-less coworker. Not disadvantaged, just no longer advantaged.

I'm not sure I agree with that, but I need to give it a little more thought.

The government has been clear they want you to work harder and earn more, they also want you to have children and raise future tax payers, if you do have children either your career and earnings take a hit or you need to put them in childcare, in that case I think all child care should be tax free, they're only in there so you can work and earn and pay tax. It's typical that your wages should increase with experience but you can't un-have children, perhaps you didn't even know you'd hit that threshold when you had them, or more likey that such a threshold even exists.

If we don't think of it like that, but simply that you're no longer advantaged as you put it, the issue is that it's sudden and affects unevenly, two parents can earn £99,999.99 EACH and still receive it, but a single parent or one person in a couple earns that extra penny they're now £2000/child worse off and still have to put their children in childcare.

Of course there's an option to have or not to have children, but I'd argue that the global consensus in countries with ageing populations, like the UK, is that the government want you to work more, and for longer and have more children, so it should be fair to say that from the government perspective, having children is the expected norm.

Calling people earning over £100k "everyone else" is strange. Surely that's a minority of people.

That jump in childcare costs definitely sounds annoying but if the overall percentage isn't very high then you're not being taxed to the eyeballs.

We could imagine fixing the problem by making the childcare voucher phase out between 80k and 100k, and at 100.2k you'd get exactly the same amount as you get under the current system.

In this hypothetical would you still say taxed to the eyeballs? If so, what would your justification be?

The nuance of the situation was obviously missing from that short "emotional" statement I made, but I wasn't intending to start the argument it caused, just expressing some frustration in passing before someone jumped on my back.

With a progressive tax band, the burden is different, you're aware of it ahead of time and you set your living standards accordingly, you won't see a big sudden drop and can adjust accordingly. You can't suddenly sell your home or find a much higher paying job in the same space of time a small pay increase took you over the cliff.

For my generation, a professional that's having a family has probably focused on their career to get there, having there kids once they break some income threshold at a certain age, let's say it's 80k to fit with your numbers. You bought your home somewhere where those higher salaries are, paid a premium, higher SDLT on a small new build flat, you upsize when you have kids, buy a(n) (old) house, now overpriced due to property price jumps in the last few years, another chunk of SDLT, bills much higher, then you hit 100k as your costs have gone up significantly, that might be manageable, but you've just lost 2k per child to the tax credit trap, then the next 10k breaks even, after that you're taxed at 60% while your salary can't/won't be able to increase enough to offset that additional tax burden and your living standards have materially dropped because you got a pay rise.

I suppose the nuance I'm trying to convey is one of timing compounded by cliffs in the tax system that wouldn't become the sudden problem they are if the tax system wasn't set up the way it is.

One could argue that you could have known this, but I don't believe anyone would be seriously aware of the pitfalls until they have kids or hit a salary where you're going to be hit with a big step in tax burden.

Sure it won't affect everyone the same, but if you happen to meet those specific criteria with that specific timing, it can certainly feel like being "taxed to the eyeballs" even if that isn't the best way to put it. I'm far from the only person in that position, it's just the natural progression for some.

I hope that explains my position a bit better. I wasn't trying to say "I pay too much tax as a percentage of my income", in fact I DON'T think that, but I and others I've spoken to in this situation believe it's a tax-based ceiling on our progression and is a tax-based contribution to the growing wealth devide pushing anyone down that attempts to break into the middle class, which as a whole just makes the rich richer and the poor poorer; no I'm not putting myself in those brackets before someone jumps on me, but pushing the middle down makes the rich richer and the poor poorer (sorry slight tangent at the end there).

I think some perspective is missing if you’re describing this as “pushing anyone down that attempts to break into the middle class” when the cutoff points (when the step changes occur, as you’re correct to note) come into effect at around something like the 95th percentile of UK salaries.

https://thesalarysphere.com/blog/average-salary-uk/

I don't think there's a clear consensus on what is considered middle class in this country now, for many it can be social, and other factors, I would consider it, in this context to be a certain standard of living.

Owning a home, having significant savings, holidays abroad at least once a year, sending your children to private school, etc are probably some things I'd consider markers of being in the lower middle class.

On that basis, homes are becoming harder to own, savings are being eaten up by higher cost of living, the pound is weakening and taxes are making it untenable to send your children to private school.

Maybe my idea of what being middle class is is wrong, but it can't be far off, and that's exactly the group of people who aren't going to go much further beyond that to whatever comes at the next stage, I don't know what living standards look like for people above that; multiple properties, significant portfolios, not working for a living?

If my perspective if off, I'm willing to hear it.

I think the general point is you are presenting something as a hardship that is a quality of life unachievable for most people (even in the UK), and unthinkable for most people in the recent past, even in the West.

You come across as out of touch and entitled. You live in the future - enjoy it!

I guess traditionally ‘middle class’ referred to the type of occupation (e.g. non-manual) which was typically associated with being better off.

But it’s not obvious that the standard of living associated with being better off would ever have been near the 90th, let alone 90th percentile of salaries?

Not convinced that sending children to private school would ever have been seen as a ‘lower middle class’ expectation.

But I’m also not convinced that the markers you describe are not available to someone at the 75th percentile of income, say, let alone to people at the 95th percentile. Now the luxuriousness of those markers may not be at the level marketed in glossy brochures etc but isn’t that an issue with unrealistic expectations?

This may be slightly chicken and egg; it's the 95th percentile of salaries partly because no one wants to take a salary above that. Instead they use salary sacrifice, pensions, dividends, capital gains, leaving money in personal service company, etc. anything to avoid having a personal paper income above that threshold.

I suspect it's nowhere near the 95th percentile of earned wealth.

I don't think this hypothetical behaviour would change the 95th percentile or any percentiles below it, would it?

If the income of everybody above the 80th percentile dropped to be equal to the 81st percentile, the 80th percentile income wouldn't change the ones above would just be very closely bunched.

(Last time I checked the opposite was true and they got more spread out)

I think it would, once you put in place mechanisms to move your income down to below £100k, you can and probably should tweak them further to reduce your tax bill even further.

I just need to say that this is such a great question. Everyone is going to apply their own idea of "to the eyeballs" unless and until it is defined.

I did answer the question, you just didn't like the answer.

The truth is I don't know the exact numbers but it's not relevant to my point, as I've tried to point out elsewhere.

You did not answer the question. You repeatedly dodged it while blaming your "wording" (?) on your failure to answer it. It's right there for all of us to see.

Now despite your previous admission, you are here telling me that you did answer it and I just didn't like the answer. The question has revealed more about you and your motives than we could have ever imagined.

What does "not exactly the milky bar kid" mean? That you're not white or set for life?

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