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A salary of £100k is a very good one when compared to most people in this country. My heart bleeds for them. How will they afford the school fees for little Quentin?
Maybe we should just give the rich a free pass? Afterall, they will allow thier wealth to trickle down to us plebs. Apparently.
Missing the point. This policy is causing Doctors to choose to work part time...
And in London, where many such earners live, £100k is certainly very comfortable and no one will starve but after housing it's NOT "rich". "Quentin" is unlikely to be going to private school
It depends on your point of view. I see people in my wider family really struggle on low wages and I am expected to care that those getting a decent wedge are suffering? I have little sympathy. Our focus as a society is facing the wrong way.
Are there no people in London earning minimum wage? Why are they less worthy of our sympathy or interest then a high earner? Do they not have to struggle with housing costs and such like? if it hard for someone rich what's it like for a binman?
A wage of £100k is rich regardless of where you live in this country. I wish I was on that. I would happily take the tax problems!
Are there no people in London earning minimum wage? Why are they less worthy of our sympathy or interest then a high earner? Do they not have to struggle with housing costs and such like? if it hard for someone rich what's it like for a binman?
Fair enough - my sympathy for them is limited mind. I don't think the rich pay enough tax. Most people in this country earn nowhere near that much so I would rather focus on the majority than the lucky minority. I think that is a problem we have in this country.
Income tax is a red herring. Income is easy for high earners to obfuscate; most of the wealth in our society is sucked into assets like the value of land and until we deal with that the vast majority of us will continue to get poorer
It is for people on a lot more income. The hiding has costs, so again it is that just "rich" but not "really rich" who get clobbered.
The Conservatives were very good at putting schemes in place that only help those with more. Labour appear happy to continue since they only impact this "rich" but not "really rich" group.
For example, private landlords lost interest relief on income tax. This means moving ownership of the properties to companies. The capital gains tax implication then kicks in. However, if "the rental properties were effectively a sole-trader business" you can claim CGT relief (it passes to the business based on the original value purchased by the individual and not the transfer price, so the tax is still there but it makes it easier for larger portfolio owners to incorporate). Fine if you have enough properties, useless for people with 1 or 2. Labour have not changed that one.
Maybe they can, although I am sceptical, to put it mildly. However, even if they can, the savings and efficiencies are not passed on to the end customer, whether that's a private individual or the taxpayer. The middleman, for want of a better description, takes the savings for themselves.
If everyone in a privatised subcontracting chain is taking cost + x% then it is rarely, if ever, going to be cheaper than simply doing it yourself. PPI should prove that, if nothing else does.
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The £100-125k is a shocking distortion of the tax system. Of course those people are doing fine in absolute terms but many are among the brightest and best and some (including Doctors) are refusing promotions or cutting hours for tax reasons... Very, very silly
I think it's possible to say £100k is a great salary and privileged position to be in; while also acknowledging that an effective tax rate of >100% is absurd
The marginal tax rate for people earning between £100,000 and £124,999 is 60%, primarily because of the tax-free allowance taper (for every £1 you earn over £100,000, £2 comes off your tax-free earnings allowance).
The marginal rate is lower for people earning below £100,000 as that is below the point at which the taper kicks in. The marginal rate is lower for earning £125,000 or above as that is above the point at which the allowance is fully tapered away.
The talk of people cutting hours to avoid earning more than £100k simply demonstrates that people do not understand how the tax system operates.
The marginal tax rate of 60% does not apply to all of one's earnings, the marginal tax rate simply applies to the earnings between £100,000 and £124,999. If you are on £99,999 and your pay goes up to £100,001, you will still retain 80p of that additional £2. But people don't seem to understand that.
I can understand why people may choose to take a cut in working hours in lieu of a pay rise; money doesn't buy you extra time with your family. I can also understand why people may choose to put the extra into a pension. But someone who earns £124,999 will still take home £10,000 per year more than someone who earns £99,999.
The marginal tax rate for people earning between £100,000 and £124,999 is 60%, primarily because of the tax-free allowance taper (for every £1 you earn over £100,000, £2 comes off your tax-free earnings allowance).
The marginal rate is lower for people earning below £100,000 as that is below the point at which the taper kicks in. The marginal rate is lower for earning £125,000 or above as that is above the point at which the allowance is fully tapered away.
The talk of people cutting hours to avoid earning more than £100k simply demonstrates that people do not understand how the tax system operates.
The marginal tax rate of 60% does not apply to all of one's earnings, the marginal tax rate simply applies to the earnings between £100,000 and £124,999. If you are on £99,999 and your pay goes up to £100,001, you will still retain 80p of that additional £2. But people don't seem to understand that.
I can understand why people may choose to take a cut in working hours in lieu of a pay rise; money doesn't buy you extra time with your family. I can also understand why people may choose to put the extra into a pension. But someone who earns £124,999 will still take home £10,000 per year more than someone who earns £99,999.
It is possible in the £100k-£125k range to have an effective tax rate greater than 100% due to the withdrawal of tax-free childcare. This means it is possible to take home less by earning more.
I would actually suggest it is those who say you should not cut earnings in this range and you'll always take home more who don't understand how the tax and benefits system operates.
I don't think the rich pay enough tax. Most people in this country earn nowhere near that much so I would rather focus on the majority than the lucky minority.
There's always a danger of defining rich as 'what I earn + £1'. We're all guilty of it. Ten years ago my household income was about £70k a year, now it is about £125k a year. £125k a year sounded really rich when I was earning half that but, now I'm there, it doesn't feel very rich at all. I'm very comfortable, thank you, and I'm certainly not complaining about my lot, but rich? Nah.
It is possible in the £100k-£125k range to have an effective tax rate greater than 100% due to the withdrawal of tax-free childcare. This means it is possible to take home less by earning more.
I know the scheme is called 'tax free childcare' but that's not how the scheme operates in practice. For every £1 you pay into the scheme the government will add 20p. So for your £1 you actually get £1.20 of childcare. But the total the government will 'top up' is £2,000 per child per year.
So if you have a large number of children or you pay for very high-cost childcare then the value of the 'top up' may be more than the value of the extra earnings. But it is a rather niche situation and a very narrow band where it applies. The loss of the top-up probably should be tapered- and it would be an easy win- but it doesn't apply to many people. For two children and the maximum top-up, once you hit £110,000 you're still better off than someone on £99,999. But bear in mind that, to get the full £2,000 top-up, your overall childcare costs would have to be £18,000 a year per child.
There's always a danger of defining rich as 'what I earn + £1'. We're all guilty of it. Ten years ago my household income was about £70k a year, now it is about £125k a year. £125k a year sounded really rich when I was earning half that but, now I'm there, it doesn't feel very rich at all. I'm very comfortable, thank you, and I'm certainly not complaining about my lot, but rich? Nah.
I know the scheme is called 'tax free childcare' but that's not how the scheme operates in practice. For every £1 you pay into the scheme the government will add 20p. So for your £1 you actually get £1.20 of childcare. But the total the government will 'top up' is £2,000 per child per year.
So if you have a large number of children or you pay for very high-cost childcare then the value of the 'top up' may be more than the value of the extra earnings. But it is a rather niche situation and a very narrow band where it applies. The loss of the top-up probably should be tapered- and it would be an easy win- but it doesn't apply to many people. For two children and the maximum top-up, once you hit £110,000 you're still better off than someone on £99,999. But bear in mind that, to get the full £2,000 top-up, your overall childcare costs would have to be £18,000 a year per child.
It's not that niche. And it refutes the point made earlier that someone who earns £124,999 will take home £10k more than someone earning £99,999. Sometimes it will be true, but sometimes not. There's 1.2m people paying the additional rate of income tax; many of those will live in London so if they're getting childcare it'll be London rates. There really are people who would benefit from earning slightly less income.
I know the scheme is called 'tax free childcare' but that's not how the scheme operates in practice. For every £1 you pay into the scheme the government will add 20p. So for your £1 you actually get £1.20 of childcare. But the total the government will 'top up' is £2,000 per child per year.
So if you have a large number of children or you pay for very high-cost childcare then the value of the 'top up' may be more than the value of the extra earnings. But it is a rather niche situation and a very narrow band where it applies. The loss of the top-up probably should be tapered- and it would be an easy win- but it doesn't apply to many people. For two children and the maximum top-up, once you hit £110,000 you're still better off than someone on £99,999. But bear in mind that, to get the full £2,000 top-up, your overall childcare costs would have to be £18,000 a year per child.
You will not be eligible if either:
your child does not usually live with you
you or your partner have an expected adjusted net income of over £100,000 in the current tax year
It [hiding from the tax man] is [easy] for people on a lot more income. The hiding has costs, so again it is that just "rich" but not "really rich" who get clobbered.
I think you need to give some specifics as to how this is easy. Maybe there's some scope for business owners or sole traders but not for employees, regardless of how senior they are.
I think you need to give some specifics as to how this is easy. Maybe there's some scope for business owners or sole traders but not for employees, regardless of how senior they are.
Otherwise, switch to share options and/or other options with a company sitting in the middle. Footballers do things like image rights contracts, but they are not the obvious group to learn from.
Sadly, my salaried income is unlikely to make any of those things viable and so I have not explored in depth.
Otherwise, switch to share options and/or other options with a company sitting in the middle. Footballers do things like image rights contracts, but they are not the obvious group to learn from.
Sadly, my salaried income is unlikely to make any of those things viable and so I have not explored in depth.
It's not so easy just switching to contracting any more.
Changes to liability for determining IR35 status mean employers/clients are much more reluctant to move people from permie to contract, as they know it'll look suspicious if anybody clocks it. If the role genuinely changes to be outside IR35 working practices, that's fine, but they do need to be material changes, not just a different pay arrangement.
In general the contracting market has taking a downturn and clients are way more cautious about hiring contractors.
The concept (when not expressed as a marginal tax rate) of people paying a gradually higher tax rate on their overall income as they earn more is not a bad one, and certainly not something a political party pushing a progressive agenda should be 'spending' money on changing.
It seems that there are some practical issues about how this is implemented, but it is really difficult to see how this government can do anything about it when there are other priorities and issues for people with lower incomes.
From an economic point of view, I think it would be better if the higher paid roles in society spread a little further than being concentrated in few people.
It's not so easy just switching to contracting any more.
Changes to liability for determining IR35 status mean employers/clients are much more reluctant to move people from permie to contract, as they know it'll look suspicious if anybody clocks it. If the role genuinely changes to be outside IR35 working practices, that's fine, but they do need to be material changes, not just a different pay arrangement.
In general the contracting market has taking a downturn and clients are way more cautious about hiring contractors.
Thanks. As I say, it is not something we have to think about in academia. IF we want to go into serious earnings, it means reducing the university element and increasing outside consultancy contracts.
Many professors are in the 100-125,000 band, but even the Vice Chancellors are not exactly earning mega money.
Otherwise, switch to share options and/or other options with a company sitting in the middle. Footballers do things like image rights contracts, but they are not the obvious group to learn from.
Sadly, my salaried income is unlikely to make any of those things viable and so I have not explored in depth.
Yes, sole trader has some tax advantages. Less since IR35
I fear you are missinformed about share/share option plans aside from HMRC approved plans which are limited in scope. The vast, vast majority of executive share or share option awardsin the UK are subject to PAYE. There is no tax advantage and you have to wait to get the shares. Admittedly there is a little scope in an early stage or turnaround situation private company but that's a minority sport which often involves paying tax up front or buying the shares before flipping into CGT treatment (and a positive outcome is far from guaranteed).
It seems that there are some practical issues about how this is implemented, but it is really difficult to see how this government can do anything about it when there are other priorities and issues for people with lower incomes.
The politically acceptable way to do it is to do it with a UC taper reform as well. The crazy 100-125k marginal rates (don't forget employer NI btw - taxes are even higher than they seem, it's just that bit is hidden) have a similar insanity at the low end where coming off universal credit can end up with 75% marginal rates.
While we're talking problematic taxation, something that is bubbling under the surface and has actually made me start to get buyers' remorse about my degree, is student loan debt and repayments. While student loans have T&Cs that are more generous than a typical bank loan, I think they have been mis-sold and are create an income bracket that is not worth working in (typically 50-100k) while the debt exists. A Plan 2, which seems to be the most common at the moment (and is mine), has a threshold of £28,470 and then a rate of 9% repayment on income over this. This looks generous, and if you earn below or not much above this, it is.
However, once your salary gets over 50k, especially if other tax problems come into play, then tax rates on that income rocket. I'm not at this yet, however I can get a fair bit of overtime when out of hours incident response occurs, and I sometimes have to be careful how much I go for because student loan takes a notable amount of this away due to how it's calculated off monthly pay checks. If I manage to get another promotion or two, I may have to question overtime altogether, and any promotions to levels above the 40% income tax threshold may have to wait until I'm 52 (22 years away for me), when the 30-year write-off takes effect, unless radical reform to the system is made, and/or other taxes are cut to compensate. Once you get above 100k a year, more so the higher the salary, graduates are better off trying to repay the whole loan as quickly as possible.
The aspect of student loans though that is exacerbating this is the interest charged, which is RPI+3%. This was bad enough when implemented, while inflation was relatively low, but come 2022 it got so bad, a cap had to be introduced to stop an interest rate above 15% being applied. If the loan was interest free, most graduates who go onto earn enough to repay it could well pay it in full before the write-off. This would also encourage further career progression and in turn make it more likely a given graduate repays the full amount, which, depending on outcomes, could actually allow the government to get more money back.
As for the buyers' remorse aspect, while I have managed to take a career path my degree enabled, I do wonder if I could have managed the same path with an alternative much cheaper form of further education, or even a slightly lesser-path but without the loan burden being comparable to me now, and better in the future depending on where I go next.
However, the whole loan system has impacts on all taxpayers, even those who never went to uni. This is because once the 30-year loan write-offs take effect, some enormous sums get added to the national debt every year. I believe the ONS now factors this in, rather than waiting till 2045, but it still is a ticking time bomb.
In short, this could well be an almighty ponzi-scheme.
There was an FT article yesterday asking if student loans will be the next financial misselling scandal. In particular, the "interest" rate of RPI+3% mentioned by @brad465 was highlighted
The concept (when not expressed as a marginal tax rate) of people paying a gradually higher tax rate on their overall income as they earn more is not a bad one, and certainly not something a political party pushing a progressive agenda should be 'spending' money on changing.
It seems that there are some practical issues about how this is implemented, but it is really difficult to see how this government can do anything about it when there are other priorities and issues for people with lower incomes.
However, incentives matter. Higher tax rates don't always bring in more revenue if people choose to change their behaviour. It's been noted earlier in the thread around doctors limiting their hours to avoid cliff edge tax rates. I believe the year after the 50% rate was abolished income tax receipts actually grew as people had deferred until the rate dropped.
A system where you only paid higher rates on income above thresholds without taking things away would still be progressive. But wouldn't be seen as being unfair to the same extent. You can probably implement it in a revenue-neutral way so no 'spending' is required. Restore the allowances, but drop (or continue to freeze) the higher rate allowances to recoup it. You're also saving on the administration of calculating what someone is entitled to.
There was an FT article yesterday asking if student loans will be the next financial misselling scandal. In particular, the "interest" rate of RPI+3% mentioned by @brad465 was highlighted
Graduates are in uproar about Budget changes to loan repayment terms, and they have a point
www.ft.com
“A 30-year debt sentence”; “a tax on ambition” that has created “a new social class of the educated, but indebted”.
Young professionals are bitterly angry about the student loans system, with growing numbers protesting that agreements they were encouraged to sign up to as 18-year-old school pupils are blighting their financial futures in ways they never realised were possible. Do they have a point?
Having corresponded with hundreds of graduates on social media this week, I certainly think they do — and employers and MPs should take note.
If this was a policy that could be done that was relatively realistic and long-term beneficial, I'd make student loans interest free, and then maybe also consider writing off the portion of all Plan 2 student loans that is merely previously charged interest. This last bit though maybe too costly and could incur legal challenges due to being a retrospective loan T&C change (even though it would be in favour of the indebted people).
However, incentives matter. Higher tax rates don't always bring in more revenue if people choose to change their behaviour. It's been noted earlier in the thread around doctors limiting their hours to avoid cliff edge tax rates. I believe the year after the 50% rate was abolished income tax receipts actually grew as people had deferred until the rate dropped.
It comes to something when ‘Henrys’ in London worry about money, but that’s the reality of today’s wages and the cost of city living, says Jason Okundaye, a Guardian assistant opinion editor
£125k a year sounded really rich when I was earning half that but, now I'm there, it doesn't feel very rich at all. I'm very comfortable, thank you, and I'm certainly not complaining about my lot, but rich? Nah.
You are richer than I am! ( more like x 2 than +1!) As I said, I wish I had those problems to worry about
My friends don't earn anywhere near that, some closer to 25k than 125k a year and they are really struggling so god knows what it is like for people on less. We focus (or are at least guided to focus) on the richer end of the spectrum than the poorer end and seems wrong to me.
Is that the arrangement now? WOW. My loan was on a tiny interest rate with repayment not starting until you were earning a substantial sum. I think it was 35K which then was a really GOOD wage!
Mine was a "Mortgage Style Loan" paid back in fixed instalments starting in the April following graduation. The debt was divided into 60 or perhaps 80 fixed monthly repayments starting after reaching an earnings threshold. I paid all of mine off eventually but it was YEARS until I earned enough to do so! It was a pain to make the payments but it was a low rate fixed pain. RPI+3% must be making someone a fortune!
However the loan book including my aged account was sold to a company called Erudio Student Loans. Don't get me started on them!
The politically acceptable way to do it is to do it with a UC taper reform as well. The crazy 100-125k marginal rates (don't forget employer NI btw - taxes are even higher than they seem, it's just that bit is hidden) have a similar insanity at the low end where coming off universal credit can end up with 75% marginal rates.
The UC taper actively discourages people from taking more hours or otherwise increasing their earnings. The original proposals were for a much more generous taper to encourage people into work but, as with so much, Osborne 'reformed' them into what we have now. And no party is willing to revisit them less they be accused of being soft on benefit claimants. It is regrettable.
I cannot access the Financial Times article you linked to so cannot comment.
The help through 'tax free childcare' is a top-up of 25% of what you pay in- for every 80p you put in, the Government pay 20p. But this is capped at £2,000 per child per year. This means that if your childcare cost is £10,000 per year then you will pay £8,000 and the government will pay £2,000. If your childcare cost is higher than that then you will still only get a maximum £2,000 from the government. If your income tax rate is 40%, you will also still only get 20% from the government.
The income tax rate for earnings below £125,141 is 40%. In addition, the personal allowance has a taper set at £2 for every £1 earned.
So for every £1 you earn over £100,000, the government takes roughly 60p in income tax and 2p in employee NI. So you keep roughly 38p.
£2,000 x 38% is about £5,250. This means that for every child you have, you'd have to earn an extra £5,250 before tax to offset the loss in childcare help. The average family has 1.7 children and about half of all families are single child families. So a parent with one child earning £106,000 would be better off than a parent earning £99,000 and a two-child parent earning £111,000 would also be better off than someone earning £99,000. I can't work out how the IFS reached their conclusion.
That said, I'd agree in tapering the removal of the help. It'd be an easy win for Labour and it wouldn't really cost very much.
There was an FT article yesterday asking if student loans will be the next financial misselling scandal. In particular, the "interest" rate of RPI+3% mentioned by @brad465 was highlighted
Student loans were never missold. The issue is that people didn't- and still don't- understand the loans, how repayments work, and the effect of compound interest. I worked in student advice for many years and every time I explained this I just got blank looks.
The repayment is a flat 9% of anything earned over £29,385. It doesn't matter how much you borrowed or how much interest is applied, your repayment is a flat 9% of anything you earn over £29,385. Anything you haven't repaid after 30 years gets written off.
It is effectively a 9% graduate tax. Most people will not repay their loan within 30 years and anything they don't pay gets wiped.
Because of that write off after 30 years, in the vast majority of cases it simply doesn't matter that the amount owing is accelerating faster than the amount being repaid. Interest could be a million quid a week and it wouldn't matter- you only pay 9% and anything not repaid after 30 years gets wiped. People scrabbling to repay extra early are, in 90% of cases, simply chucking their money away. It's simply not a debt in the real meaning of the word.
However, there is a small subset of very high earners who will repay all of the loan and all of the interest within 30 years. Back in 2015 when I was working on this, it was estimated that only about 20% of graduates would repay the loan and interest in full. But that was before RPI sky-rocketed; now, I'd say it'll only be about 5% of graduates who will repay everything. But it's important to note that they also still only paid 9% of their earnings into repaying the loan, it's just that 9% of a lot of money is a lot of money.
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You are richer than I am! ( more like x 2 than +1!) As I said, I wish I had those problems to worry about
My friends don't earn anywhere near that, some closer to 25k than 125k a year and they are really struggling so god knows what it is like for people on less. We focus (or are at least guided to focus) on the richer end of the spectrum than the poorer end and seems wrong to me.
It's across both Mrs Tyke and I on a roughly 50/50 split, but I agree- we each earn roughly double the average wage.
The problem is that I don't feel rich. This sort of income feels like it should be two foreign holidays a year at the pointy end of the plane territory and it, well, isn't. I am not complaining because I am certainly comfortable (and in the past I have not been comfortable at all, so I know how it feels). But rich? Hmm.
But yes, we're all guilty of considering rich to be [what we earn] + £1.
If I was on £20,000 I'd think someone earning £60,000 was incredibly rich.
I'm on £50,000 and I don't think I'm rich, but I do think someone earning £150,000 is rich.
If I was on £150,000... Well, you get my point.
I'm not complaining about my lot, I am comfortable enough. Having been in a situation earlier in my life where a failed washing machine caused significant financial distress, I can appreciate that I can now buy a new washing machine or fridge without having to think twice. I can put my heating on without worrying about the gas bill- and I am not being flippant about that, as so many people cannot.
Student loans were never missold. The issue is that people didn't- and still don't- understand the loans, how repayments work, and the effect of compound interest. I worked in student advice for many years and every time I explained this I just got blank looks.
But is there evidence students don't understand it?
It's explained it pretty clear language in my view. Taking the newest (Plan 5) loans as an example:
Interest rate is RPI, with a cap
You repay 9% of your income over £25k
It's written off 40 years after the April following you leaving HE, or if you're deemed unfit to work through certain disabilities
I think most people starting university understand that financial product.
Whether they do a calculation on whether they'll pay the loan off before it's written off isn't really a sign that the product is complex. Many people take out mortgages in their 60s with little hope of paying them off; that doesn't necessarily make the product itself complex.
The student loans system needs to get in the sea, and they need protection from retrospective terms changes, but I'm not sure they're complex per se.
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www.ft.com
www.theguardian.com
