The 60% Tax Trap: Why Earning More Could Leave You Worse Off
Most people assume that earning more means taking home more money. Unfortunately, the 60% tax trap reminds us that the UK tax system isn't always straightforward. For higher earners approaching £100,000, a pay rise or bonus can yield a surprisingly disappointing result ... Extra income can trigger lost allowances and a 60% effective tax rate The 60% tax trap arises because the Personal Allowance, the amount most people can earn before paying Income Tax, gradually disappears once adjusted net income exceeds £100,000. For every £2 earned above that threshold, you lose £1 of the allowance. This creates an effective marginal Income Tax rate of 60% on earnings between £100,000 and £125,140 in England, Wales and Northern Ireland. Recent reports suggest that the number of people affected has risen considerably over the past few years!With tax thresholds frozen while salaries and other income rise, more people are being caught by rules they may never have needed to consider before. And that's where I think the real problem lies. We generally encourage people to work hard, develop their careers and improve their financial circumstances. Yet the tax system can make that extra effort feel rather less rewarding than expected.Consider somebody earning £100,000 who receives a £10,000 bonus. They might reasonably expect to keep a substantial share of that extra income. However, once you account for the reduction in your Personal Allowance, £6,000 could disappear in Income Tax alone, with National Insurance potentially reducing the amount further. Fortunately, there are legitimate ways | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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