The simple answer to this question is yes, a salary of 100k + does still put you in a relatively select group at the top of the UK earners list. Whilst those at the very top of that heap are touching seven-figure salaries, the proportion of those on more than £100k continues to grow.
But with a cost of living crisis, slow growth and record amounts of government borrowing needing to be paid back, if you’re earning £100k or more in the UK, you may find yourself in the spotlight if there are any changes to the income tax bands.
‘Higher earners should pay more tax’
This is the mantra of many an election manifesto in recent times and unsurprisingly it is likely to form the backbone of the next general election too. Those earning the most are likely to be targeted to make a greater contribution to the national effort and the £100k mark seems to be the natural point of focus.
At present, UK income tax rates don’t make a distinction at £100k, with the higher rate tax covering everything from £50,001 to £150k. Other than the Conservative party, most other mainstream political parties believe this income bracket is too broad, especially given that the tax free and basic rate tax segments are much smaller. The general feeling is that the additional rate of 45% should kick in at £100,000 and a new upper rate of 50% should apply beyond £150k. Whilst this would see more people paying an increased amount of tax, it is not clear what would happen to the hidden rate of tax that already applies beyond £100k as a result of a reduction in the personal allowance.
If you earn £100k or more or are required to submit a self-assessment tax return for any other reason, please contact our team today to find out how we can help you hold on to more of your earnings through careful personal tax planning.
‘Hidden’ tax rates over £100k
If you’re earning £100k, or are due to break that threshold, you may already be aware of the intricacies of the tax rate set up that mean you end up paying a hidden rate of tax. Whilst higher rate tax applies from £50,001 to £150k, many are unaware that their personal allowance reduces gradually after £100,001 such that it is removed by the time you earn £125k – the allowance reducing £1 for every £2 earned. The impact of this is you end up ‘retrospectively’ paying basic rate (20%) tax on income that you had previously received free of tax.
Some suggest that this actually creates a 60% tax rate (40% higher rate + 20% on personal allowance) which arguably sounds better for the UK treasury than simply reducing the point at which additional rate tax (45%) becomes payable.
So, it will be interesting to see, as we approach the election and potentially even during this parliament, whether the thresholds are up for discussion and how the tapered reduction in personal allowance is approached. It’s certainly a complex calculation and as ever there will be some that benefit and some that end up worse off. Undoubtedly there’ll also be those that work out the best way of earning the most whilst paying the least in taxation.