Income tax: Brits ‘don’t know strange rates’ as households face 85% rate after pay rise | Personal Finance | Finance

Chancellor Jeremy Hunt has extended the freeze on the UK income tax credit limit, which will now last until 2027/28. The government appears to have taken the decision to balance the books and recoup £55 billion amid a cost-of-living crisis.

Families and high earners face eye-watering tax rates, with some getting just a few pounds from a £1,000 pay rise, new analysis by AJ Bell shows.

A complex web of limits and allowances means that some workers who get a £1,000 pay rise may lose almost all of it through narrow benefits or mountain top payments.

In the most extreme cases some will have just a few pounds from a £1,000 pay rise.

Experts have suggested that people divert money into their pensions to avoid a bigger tax penalty than a pay rise.

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Some of the hardest hit are high-earning graduates.

A graduate with a student loan who receives a pay rise next year will be pushed into the additional tax bracket, which will be reduced to £125,140, ​​just £6.50 – 99 per cent of take-home pay after a £1,000 pay rise. Tax rate.

It also takes into account the loss of Personal Savings Allowance – tax relief on savings interest.

Parents who earn more than £50,000 will see their child benefit drop, or lose out on tax-free childcare altogether once their income exceeds £100,000.

Don’t miss out

“The most popular option” is salary sacrifice to put money into their pension, meaning putting a small extra amount into a pension can bring someone back within the threshold.

This means people have to put money into their pensions, but if they take into account higher marginal tax rates, it will cost them much less.

Ms Suter added: “The UK’s tax system is crying out for an overhaul and simplification so that workers can understand exactly what they are taking home and a pay rise will actually mean they end up significantly better off.

“Unfortunately, the recent removal of the Office for Tax Simplification indicates that this is not a top priority for the current government.”

A government spokesman said: “Tax simplification is a priority for this government, so rather than a separate arm to oversee it, we will embed it in our institutions so it is at the heart of all tax policy-making.

“We are committed to protecting people on low incomes, which is why we have continued to increase the tax-free personal allowance since 2010, making it one of the most generous in the world, where 30 per cent of people are excluded from paying income tax. In total, more than 80 per cent of taxpayers pay the basic rate – which is Only possible through responsible management of public funds.”

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