Matt’s net income for the tax year 2022-23 was £116,000.
What is the highest effective marginal rate of income tax that Matt will suffer in the tax year 2022-23?
40%
45%
50%
60% ... Ans . is 60%. please explain highest effective marginal rate of income means
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Income tax computation
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It's basically to do with the fact that the personal allowance is withdrawn at the rate of one pound withdrawal for every two pounds higher than £100000. If net income £100100 then fifty pounds of personal allowance will be withdrawn on which no tax was being paid. Therefore 40 percent tax will be charged on £100 over £100000 as normal and 40% tax will be charged on £50 lost from personal allowance (0.4x £50=£20). So in total £60 will be charged on extra £100 over £100000.
highest effective marginal rate of income mean???
Effective tax rate for additional pounds of income at certain levels. With above it is equal to sixty percent.
In terms of its implications, it suggests making pension contributions on earnings above £100000 is a good idea because of extra effective tax relief obtained.
Sorry I wan't around to answer the question.
Occassionally effective tax rates are discussed but dont get involved in them in an exam.
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