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Where an individual has an adjusted net income between 100,000 pounds and 112,950 pounds, the rate of tax between these 2 amounts will usually be 60%. This is calculated as 40% (the higher rate on income) plus 20% basic rate tax extra payable as the result of the reduction of the personal allowance. The individual should consider making personal pension contributions and/or gift aid donations to reduce the adjusted net income to below 100,000 pounds.
Can you explain the 60% in a simple example? I can’t grasp it.Hi
your question is a bit vague
First of all, basic rate is 20% up to £37400
the higher rate tax is 40% above £37400, therefore it’s not really 60%. If you are earning 100000, then your tax liability would be calculated as followsSalary 100000
Personal Allowance 6475
Taxable income 9352537400 @ 20% 7480
56125 @ 40% 22450
TOTAL 29930Therefore it is not tax @ 60%.
The 60% tax is the marginal rate of tax between 100,000 and 112,950 ie the individual pays 40% tax but due to loss of the PA an additional 20% on the PA lost
Hope this helpsWhen the PA is lost, between this range, the individual will have to pay an additional 40% over the PA lost, which would otherwise be a deduction, making an overall tax effect of 80% between the range.
If you could suggest a very easy example that clarify the matter it will be most welcome Miss Superwoman.I found some kind of explanation:
“<...>basic personal allowance is withdrawn at the rate of £1 for every £2<...>
So the offending £2 will bear tax of its own at 40 per cent, that is 80p, and also trigger the removal of tax freedom (through the basic personal allowance) on another £1 giving rise to an additional 40p of tax. So a total of £1.20 tax will be payable on £2 of income – and that equates to 60 per cent tax.”https://www.moneymarketing.co.uk/iht-/-tax-planning/the-60-tax-trap/1002070.article
ahh,
firstly my apologies for my previous post, I sat F6 in December 2010 based on FA2009. However I do understand now. It is the additional 12950 that will have 60%, I have put an example below.
Income 100000 112950
PA 6475
Taxable Income 93525 112950TAX
20% 7480 7480
40% 22450 30220
TOTAL TAX 29930 37700Difference in tax 7770
As you can see this is equivalent to 60% of 12950.
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