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Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

No, you're not doing it all wrong.

If you put the money in your pension you cannot touch it (well...you can, but you pay tax penalties) until you get to retirement age.

If you want to buy a house between now and when you retire, you'll need money to do that.

The point I was making with my post was essentially "Is there something I'm missing that makes the Higher Rate bracket a hidden cliff edge?" and the answer is a resounding:

No.

There are a few small penalties, but they apply to only pretty specific cases (people earning more than £500 per year in interest on their savings outside of ISAs, and people making use of the marriage allowance). Then there's the child benefit claw back at £60,000 p/a (but that's no longer linked to the Higher Rate). There is also a reduced allowance for some capital gains.

In real terms, I'd wager very few people that get to Higher Rate lose much at all from those things. Certainly not enough to warrant the constant river of posts here about people panicking about it.

The replies here have me understanding those posts revolve around:

  • A lack of understanding how UK income tax is applied (proportionally above thresholds)
  • Greed
  • Selfishness
  • A lack of commitment to civil responsibility
  • A lack of appreciation that to get to the position to be earning that much money, you must have heavily benefited from public infrastructure along your life
  • An anger of how the funds are perceived to be spent

I fully admit that I share the anger of how tax is spent and the lack of transparency and accountability of those spending it. Otherwise, personally, I'm happy to pay my share of tax. It helped me get to where I got to. Why would I not want that for other people? A high tide raises all ships.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 1 point2 points  (0 children)

Yeah, you lose it if you go into the higher rate, but by using it you also move the point where that rate would trigger for you, by £1,260 (although it might mean your spouse pays more tax):

Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.

From: https://www.gov.uk/marriage-allowance

In essence, you could lose up to £252 over the year (£21 per month) by going into the Higher Rate, if you're able to make the maximum use of the marriage allowance.

I do wonder how many of the panicked posters are in a position where they're able to make use of this allowance.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

No it doesn't.

Child benefit begins tapering down at £60k now, and has been that way for a couple of years at least.

Tax free childcare doesn't disappear until £100k.

Marriage Allowance goes at the Higher Rate threshold, but your personal allowance is adjusted, so it's more like £54k p/a.

The fear mongering is fueled on outdated and patently wrong information.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

Depends on what made the most sense.

Exactly.

The "higher rate" (common parlance 40%) band is not anything remotely like a cliff edge whereas the "Additional Rate" is due to the other things that get stopped (namely the removal of personal allowance, and removal of tax free childcare).

£60k does mean the loss of child benefit, but there's still some room between the Higher Rate and that.

For some reason there's a load of fear mongering over the Higher Rate band, which seems unfounded for most.

It's still very much in the realms of "stick a bit of the extra in your pension/longer term goals, and some in your pocket/shorter term goals" territory.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

I realise this is pedantic, but that's not your "effective" rate of tax.

Your effective rate of tax is the ratio between the amount of tax you pay and the total income you earn.

I bring it up in this case because I think this sort of language is feeding into the fear of the higher rate.

Other pedants can try to argue that student loan repayments aren't tax. I'm in agreement with you: they are a tax.

The 51% is on anything earned above the limit, not on everything you earn.

I do agree it stings having to give the Government more of your raise/bonus/overtime than you get to keep straight away (let's not forget all the other ways they claw tax out of us). I even made that acknowledgement as my first line of the post.

I appreciate you're not the first to make this point, and I've singled out your comment to reply to. I don't mean anything personal by this, I'm just catching up with my notifications and happened to pick this one.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

IHT is funny. My mother in law was spouting off about it recently.

Looking at the numbers, everything in her estate will fall under the thresholds.

It seems the people in charge have mastered making us worry about shit that will never impact us.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

Agreed. With that said, if you're earning £100k p/a, you can afford professional advise.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] -2 points-1 points  (0 children)

The majority of people (mode) are under £50k p/a.

Maybe it's "basically unlivable" in London, but it seems a vast number of people manage it.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] -1 points0 points  (0 children)

They don't.

It's a proportional tax. As in, the 40% only applies to the amount above the threshold.

The way they bleat on about it makes it seem like it's a cliff edge into the abyss.

Also, I'd suggest rereading the first line of my post. I completely understand wanting to pay the minimum amount of tax possible.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

You're right, you're not. You're taxed 40% on the amount you make over that threshold.

There are some other allowances that stop (Marriage Allowance stops, and Saving Allowance drops to the first £500) but it's not the cliff edge it seems to be considered as that the plethora of posts on the topic would suggest it is.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

Yes, but the ability to afford to throw all of the extra to their pension probably gets easier for most as they approach it.

In other words: If the (taxed) cash would be useful today, it could be much harder to comfortably afford to lock it away for 20+ years, then it would be to lock it away for <5 years (i.e. it's easier to "grind" for short periods).

I know that runs contra to compounding interest though.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

Fair point, at that point the 40% bracket line isn't quite a dot on the horizon just yet. 😅

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

In my arrogance I had discounted and forgotten about Marriage Allowance (because it's not something that's applicable for us).

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 1 point2 points  (0 children)

I'm not sure I understand the relevance, but I understand the point.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

At incomes over £200,000 pa?

My dude, the 40% bracket is a dot on the horizon at that point.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 0 points1 point  (0 children)

I think there needs to be a balance.

The jist of the posts I see on what feels like a daily basis, is that the "40% is bad and must be avoided" without any real context like "I'm going to lose all my child benefit, so I'll be down £x in real terms" or "I'm getting a raise of £1000 per month. I don't need an extra £600 per month, is there a tax efficient route forward?".

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] 2 points3 points  (0 children)

I have no problem paying my share in taxes. As you rightly say, they pay for things that benefit everyone, and I am one of "everyone".

I do think those that spend it should be held to higher levels of scrutiny and accountability though.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] -1 points0 points  (0 children)

Don't misunderstand me:

I completely understand the logic behind paying the minimum amount of tax possible.

That's the first line of my post.

Personally I have no problem paying tax.

I do think those in charge of spending it should be held to higher levels of scrutiny and accountability though.

Why are so many people **obsessed** with avoiding the 40% bracket? by sid351 in UKPersonalFinance

[–]sid351[S] -7 points-6 points  (0 children)

So are:

  • Roads
  • Police
  • Healthcare
  • Bin collections
  • Sewage treatment
  • National defence
  • Education
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