Thoughts and prayers for those earning £100k-125k.
Should we start a GoFundMe for them?
As someone working in tax, I have never thought of the system as flawed, what is it that you think makes the system messed up?
Just for a point of reference, only about 4% of UK salaries are above 100k. This ‘trap’ only effects a very small population of the most wealthiest people in the country
What does “removal of childcare hours” mean. The graph appears to be saying that someone who has 1 child will be paying MORE in tax than someone who has 0 children if they make over 100k per year. I find that very hard to believe. And why is there a note on that graph that says “considering that 30h of childcare costs 7,210/year”. How is that relevant to the calculation?
Edit: I did about 3 minutes of research so I’m sure I don’t have all the information but it looks like if you make less than 100k then you can an additional benefit of having a portion of childcare paid for (not sure if it is actually directly paid for or just an additional tax break). So the 4th and 7th graphs are just wrong. The 4th graph should show the yellow line (people with children) as having a lower tax rate all the way up to 100k and then over 100k it is equal to people without children. Similarly the 7th graph should show people with children who make under 100k having a higher take home income and then people above 100k having an equal take home income. I didn’t look into the student loan thing at all but my guess is that it is similar to childcare where student loan debt is tax deductible so people with student loans are always paying less or equal taxes to those without.
OP is flat out wrong if they are suggesting that people with children pay more taxes, or that the middle class pays more taxes than high earners. However I do agree that having a sudden jump (i.e. loss of benefits at 100k) is a dumb setup because it provides a significant benefit to the more financially savvy people who can do things to reduce their taxable income. To the extent feasible, the government should have the tax system set up intuitively so that average people don’t need to hire a tax advisor.
Salary sacrifice £60k into a SIPP. Problem solved.
I see what you’re saying but I don’t really see the merit in the argument. You could add any expense and factor it in as a higher effective tax rate but that doesn’t make it a tax? I get that you’re focusing childcare hours under £100k but that’s clearly intentional and targeted and it doesn’t somehow become a reverse tax for people earning over £100k.
The marginal tax is the most relevant one. But to be honest, it’s not even that bad. In the Netherlands it’s roughly 0% until 25k/year, and 50% above that. (And in some cases 56%). That is only with health insurance allowance. If you include a child, it’s dumb to work more if you earn minimum wage, as for every 1000 EUR extra in gross salary, you might only get like 200-300 EUR, on an annual basis.
Where is the flaw?
The richest ~5% aren’t given the same benefits and are asked to pay a bit more, just on the extra income the get. They still only pay 20% on the first £50k, etc. This is a fairly standard tax progression.
You could argue giving benefits to people earning up to £80K a year, and free childcare up to £100k, while the tax burden is at an all time high is the flaw.
So if I understand correctly, the personal allowance is similar to the standard deduction in the US and the rise depicted results from its gradual elimination. But nothing’s really broken about that, it’s not like increases to your income reduce your take home pay–your take home pay just doesn’t rise as quickly as it would for a comparable raise at a lower income.
That seems fine when we’re talking about the top 4% of household income which, to be clear, we are. It only looks like a trap because marginal tax doesn’t continue to rise after the personal allowance is fully removed. Which could be fixed by simply increasing taxes on wealthier folks to remove the jagged endpoint. But the evocative language you’ve chosen, as well as the particular class you’ve targeted, suggests that you favor tax cuts instead of progressive taxes, which I personally think is stupid, particularly given that the extent and duration of conservative control in the UK strongly suggests the country can’t afford further tax cuts. Apologies if I’ve read too much into this, however.
US tax preparer here – anyone willing to do a comparison? Student Loan Interest Deduction is pretty immaterial, Child Tax Credit and Dependent Care Credits keep going a lot longer. Intuitively I think US is a lot more progressive and caps out a lot lower (before considering state taxes anyway, which is another ~5-10% effective).
Ok, so there’s a narrow band of 25k above an already much-larger-than-average-income of 100k where you pay more tax than someone earning more than £125k. That’s the story, except that I don’t think that’s the case, I think that’s trying to fit facts to a narrative. I think your second graph is actual taxation, and it monotonically increases with income.
The more-often quoted tax rate is Income-tax + NI. Anything over that is constructed as removal of benefits after taking home that above-average salary. The fact that an even higher salary can compensate for this due to how fast those benefits disappear does not make the £25k band a “trap” IMHO.
You are modifying your calculations and calling these modifications “taxes”:
– Removal of child benefit @ £80k – Removal of child-support benefit @ £100k – Adding the paying off a student loan.
IMHO you don’t get to consider benefit-removal as “tax”. You are receiving less benefit because you make more money. If you didn’t make that much money, you’d still get the benefit. I also think that if you take out a student loan, you should pay it back. I’m not sure how this counts as “tax”. The benefit is there for those that don’t make sufficient money that it would be hardship for them, that’s all. It makes sense to remove it as income increases.
So I don’t think this is “beautiful data”, I think it’s misleading. The 2nd graph is an accurate picture of actual taxation, the rest is trying to change that graph to make a point, IMHO. I do think the presentation is pretty 🙂 I just don’t think the data itself is correct.
Even the richest 20% had a median household post-tax income of ~£66k – which given the progressive nature of tax, is significantly less than the £112k you need coming in to be taxed (Income + NI) at the 45% rate.
It’s much better than France or Belgium where the tax trap is located at 25k/year, fucking everyone who earns just above minimum wage (at 25k/year, you ramp up from 11 to 30% in the case of France, from 25% to 45% in the case of Belgium)
Where in the UK is a 100-125k salary (personal and not household total) middle class.
This data may or may not be beautiful but I just swiped through all ten photos without feeling anything.
I’m sure the student loan system works different across the pond, so can someone explain why it’s factored in here, but no other type of loan (car, mortgage, etc) is?
Honestly, the “tax trap” is nothing compared to the 20% VAT on everything bar medicine and groceries, which is paid by everyone in the country.
Transferring into your pension becomes very tax efficient at 100k!
The graph of income after tax is so telling. Would love if someone made that for federal income tax in America.
Is it a trap because the top 1% of earners pay too little, or because the bottom pays too much? Or is the gradual drop off of deductions happening too early?
What would be your suggested fix?
> “Middle class”
> Top 3% income
Pick one.
Most Americans are Paying in the 50% tax region and dont even realize it.
Middle class families have earners that get between £100k and £125k per year? Guess I must be working class if I only earn £90k a year.
I’m very middle class with children. Working for the nhs, I’m a long way from £100k salary.
This may imply someone at some point pays more than the earn, but this is absolutely not true.
Someone earning £100,000 who earns £1,000 more, will be marginally taxed at 40%, so will pay £400 of that in tax.
Their personal allowance will have decreased by £500. Personal allowance is the amount untaxed before you the 20% rate applies, so they will pay 20% on this money. That’s an additional £100 owed.
So of the £1,000 extra, they will keep £500 of it, still being much better off.
They are right that this 50% ‘effective’ tax rate is higher than the top rate of 45%, so parts of the data are true, just not well represented.
You should work in the effect of universal credit reductions at the lower level. That really is a tax trap
What would be useful – I’ve never seen it combined would be how many people earn different amounts superimposed on the tax rate. Only around 10% of households earn >£100k
The second chart does not make it look ‘messed up’.
Removal of child benefit above an earnings threshold is not a tax.
Current tax systems result in punishment for success and a reward for being lazy.
Interesting topic. Do a revision though with everyone’s suggestions.
£100k is huge for the UK, very few people make this amount
Brilliant.
Now do German Tax System. Or any other tax system as comparison …
You missed employer nationals insurance contributions of 13.8%
Put another way.
If you go from making 100k to 125k, your take home pay goes from 68,538 to 78,038 so the government is taking 60% of everything you make between 100k and 125k.
Please is there an Italian version? The world needs to know and laugh at us!
Having been on a £19,000 NHS wage frontline through COVID I’m not going to lose sleep over people who earn £100,000+ paying a bit more tax. A few extra thousand would be life changing to me and my colleagues, to someone on 100k it’s a second fortnight holiday in the sun… Which I’ve not had since the 2000s
Are the £100,000 earnings per household or per capita? If the latter would you seriously suggest that an individual earning btw 80k and 100k£ be considered as middle class? This would be upper-middle at the very least – save for London.
There are easy fixes to these concerns. Instead of having the odd accounting of reducing Personal Allowance past 100,000 pounds, the top rate could be raised a little. For the child benefit and care, they could both just be made universal, paid for with increases in the tax rates for incomes >80k. Overall, this would shift the tax burden up the income scale by a bit, but ensure that higher incomes will always have higher marginal rates than lower incomes.
I don’t understand how you can look at this and decide it is somehow unfair.
Why only factor in child care benefits that only apply to very specific ages of children? There are countless other programs that should be factored in too, if you want this to be accurate. What about reduced transit fares, low income housing, down payment assistance, food assistance, tuition grants, etc that are all means tested?
Seems like you are just upset about one issue and created a biased chart out of frustration.
42 comments
Which is it – England or the UK?
Thoughts and prayers for those earning £100k-125k.
Should we start a GoFundMe for them?
As someone working in tax, I have never thought of the system as flawed, what is it that you think makes the system messed up?
Just for a point of reference, only about 4% of UK salaries are above 100k. This ‘trap’ only effects a very small population of the most wealthiest people in the country
What does “removal of childcare hours” mean. The graph appears to be saying that someone who has 1 child will be paying MORE in tax than someone who has 0 children if they make over 100k per year. I find that very hard to believe. And why is there a note on that graph that says “considering that 30h of childcare costs 7,210/year”. How is that relevant to the calculation?
Edit: I did about 3 minutes of research so I’m sure I don’t have all the information but it looks like if you make less than 100k then you can an additional benefit of having a portion of childcare paid for (not sure if it is actually directly paid for or just an additional tax break). So the 4th and 7th graphs are just wrong. The 4th graph should show the yellow line (people with children) as having a lower tax rate all the way up to 100k and then over 100k it is equal to people without children. Similarly the 7th graph should show people with children who make under 100k having a higher take home income and then people above 100k having an equal take home income. I didn’t look into the student loan thing at all but my guess is that it is similar to childcare where student loan debt is tax deductible so people with student loans are always paying less or equal taxes to those without.
OP is flat out wrong if they are suggesting that people with children pay more taxes, or that the middle class pays more taxes than high earners. However I do agree that having a sudden jump (i.e. loss of benefits at 100k) is a dumb setup because it provides a significant benefit to the more financially savvy people who can do things to reduce their taxable income. To the extent feasible, the government should have the tax system set up intuitively so that average people don’t need to hire a tax advisor.
Salary sacrifice £60k into a SIPP. Problem solved.
I see what you’re saying but I don’t really see the merit in the argument. You could add any expense and factor it in as a higher effective tax rate but that doesn’t make it a tax? I get that you’re focusing childcare hours under £100k but that’s clearly intentional and targeted and it doesn’t somehow become a reverse tax for people earning over £100k.
The marginal tax is the most relevant one. But to be honest, it’s not even that bad. In the Netherlands it’s roughly 0% until 25k/year, and 50% above that. (And in some cases 56%). That is only with health insurance allowance. If you include a child, it’s dumb to work more if you earn minimum wage, as for every 1000 EUR extra in gross salary, you might only get like 200-300 EUR, on an annual basis.
Where is the flaw?
The richest ~5% aren’t given the same benefits and are asked to pay a bit more, just on the extra income the get. They still only pay 20% on the first £50k, etc. This is a fairly standard tax progression.
You could argue giving benefits to people earning up to £80K a year, and free childcare up to £100k, while the tax burden is at an all time high is the flaw.
So if I understand correctly, the personal allowance is similar to the standard deduction in the US and the rise depicted results from its gradual elimination. But nothing’s really broken about that, it’s not like increases to your income reduce your take home pay–your take home pay just doesn’t rise as quickly as it would for a comparable raise at a lower income.
That seems fine when we’re talking about the top 4% of household income which, to be clear, we are. It only looks like a trap because marginal tax doesn’t continue to rise after the personal allowance is fully removed. Which could be fixed by simply increasing taxes on wealthier folks to remove the jagged endpoint. But the evocative language you’ve chosen, as well as the particular class you’ve targeted, suggests that you favor tax cuts instead of progressive taxes, which I personally think is stupid, particularly given that the extent and duration of conservative control in the UK strongly suggests the country can’t afford further tax cuts. Apologies if I’ve read too much into this, however.
US tax preparer here – anyone willing to do a comparison? Student Loan Interest Deduction is pretty immaterial, Child Tax Credit and Dependent Care Credits keep going a lot longer. Intuitively I think US is a lot more progressive and caps out a lot lower (before considering state taxes anyway, which is another ~5-10% effective).
Ok, so there’s a narrow band of 25k above an already much-larger-than-average-income of 100k where you pay more tax than someone earning more than £125k. That’s the story, except that I don’t think that’s the case, I think that’s trying to fit facts to a narrative. I think your second graph is actual taxation, and it monotonically increases with income.
The more-often quoted tax rate is Income-tax + NI. Anything over that is constructed as removal of benefits after taking home that above-average salary. The fact that an even higher salary can compensate for this due to how fast those benefits disappear does not make the £25k band a “trap” IMHO.
You are modifying your calculations and calling these modifications “taxes”:
– Removal of child benefit @ £80k
– Removal of child-support benefit @ £100k
– Adding the paying off a student loan.
IMHO you don’t get to consider benefit-removal as “tax”. You are receiving less benefit because you make more money. If you didn’t make that much money, you’d still get the benefit. I also think that if you take out a student loan, you should pay it back. I’m not sure how this counts as “tax”. The benefit is there for those that don’t make sufficient money that it would be hardship for them, that’s all. It makes sense to remove it as income increases.
So I don’t think this is “beautiful data”, I think it’s misleading. The 2nd graph is an accurate picture of actual taxation, the rest is trying to change that graph to make a point, IMHO. I do think the presentation is pretty 🙂 I just don’t think the data itself is correct.
For reference, although my google-fu doesn’t seem to be up to finding the median pre-tax income for UK households, there are several ONS publications about median post-tax income, [which for 2022](https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2022) was £32,300 for a *household* not an individual. It doesn’t seem that these people will be earning over £100k, given the tax structure we have.
Even the richest 20% had a median household post-tax income of ~£66k – which given the progressive nature of tax, is significantly less than the £112k you need coming in to be taxed (Income + NI) at the 45% rate.
It’s much better than France or Belgium where the tax trap is located at 25k/year, fucking everyone who earns just above minimum wage (at 25k/year, you ramp up from 11 to 30% in the case of France, from 25% to 45% in the case of Belgium)
Where in the UK is a 100-125k salary (personal and not household total) middle class.
This data may or may not be beautiful but I just swiped through all ten photos without feeling anything.
I’m sure the student loan system works different across the pond, so can someone explain why it’s factored in here, but no other type of loan (car, mortgage, etc) is?
Honestly, the “tax trap” is nothing compared to the 20% VAT on everything bar medicine and groceries, which is paid by everyone in the country.
Transferring into your pension becomes very tax efficient at 100k!
The graph of income after tax is so telling. Would love if someone made that for federal income tax in America.
Is it a trap because the top 1% of earners pay too little, or because the bottom pays too much? Or is the gradual drop off of deductions happening too early?
What would be your suggested fix?
> “Middle class”
> Top 3% income
Pick one.
Most Americans are
Paying in the 50% tax region and dont even realize it.
Middle class families have earners that get between £100k and £125k per year? Guess I must be working class if I only earn £90k a year.
I’m very middle class with children. Working for the nhs, I’m a long way from £100k salary.
This may imply someone at some point pays more than the earn, but this is absolutely not true.
Someone earning £100,000 who earns £1,000 more, will be marginally taxed at 40%, so will pay £400 of that in tax.
Their personal allowance will have decreased by £500. Personal allowance is the amount untaxed before you the 20% rate applies, so they will pay 20% on this money. That’s an additional £100 owed.
So of the £1,000 extra, they will keep £500 of it, still being much better off.
They are right that this 50% ‘effective’ tax rate is higher than the top rate of 45%, so parts of the data are true, just not well represented.
You should work in the effect of universal credit reductions at the lower level. That really is a tax trap
What would be useful – I’ve never seen it combined would be how many people earn different amounts superimposed on the tax rate. Only around 10% of households earn >£100k
The second chart does not make it look ‘messed up’.
Removal of child benefit above an earnings threshold is not a tax.
Current tax systems result in punishment for success and a reward for being lazy.
Interesting topic.
Do a revision though with everyone’s suggestions.
£100k is huge for the UK, very few people make this amount
Brilliant.
Now do German Tax System. Or any other tax system as comparison …
You missed employer nationals insurance contributions of 13.8%
Put another way.
If you go from making 100k to 125k, your take home pay goes from 68,538 to 78,038 so the government is taking 60% of everything you make between 100k and 125k.
Please is there an Italian version? The world needs to know and laugh at us!
Having been on a £19,000 NHS wage frontline through COVID I’m not going to lose sleep over people who earn £100,000+ paying a bit more tax. A few extra thousand would be life changing to me and my colleagues, to someone on 100k it’s a second fortnight holiday in the sun… Which I’ve not had since the 2000s
Are the £100,000 earnings per household or per capita?
If the latter would you seriously suggest that an individual earning btw 80k and 100k£ be considered as middle class? This would be upper-middle at the very least – save for London.
There are easy fixes to these concerns. Instead of having the odd accounting of reducing Personal Allowance past 100,000 pounds, the top rate could be raised a little. For the child benefit and care, they could both just be made universal, paid for with increases in the tax rates for incomes >80k. Overall, this would shift the tax burden up the income scale by a bit, but ensure that higher incomes will always have higher marginal rates than lower incomes.
Meanwhile Belgium has a “tax trap” for every possible wage with a marginal taxation of at LEAST 60%, going UP to 70-75% for the actual middle class. [https://www.reddit.com/r/belgium/comments/wmhuh9/belgian_bruto_to_netto_monthly_wages_see_comment/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button](https://www.reddit.com/r/belgium/comments/wmhuh9/belgian_bruto_to_netto_monthly_wages_see_comment/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
I don’t understand how you can look at this and decide it is somehow unfair.
Why only factor in child care benefits that only apply to very specific ages of children? There are countless other programs that should be factored in too, if you want this to be accurate. What about reduced transit fares, low income housing, down payment assistance, food assistance, tuition grants, etc that are all means tested?
Seems like you are just upset about one issue and created a biased chart out of frustration.