“Tax doesn’t have to be taxing” …

Well tax is unfortunately taxing, and is frankly synonymous with boring for most people (sorry HMRC – marketing strap-lines won’t change that) – but what might change the perception is helping individuals:

(1) Be clear on their personal income and the (£) benefits of giving 15mins admin time to it

(2) Begin to actively manage your personal finances and build wealth with a toolkit of actionable decisions

After all, optimising your salary / income is probably the highest returning and risk free decisions to build wealth in the UK and requires just a little admin.

Starting with the basics:

£0 – £12,570: the first £12,570 of earnings in the UK is tax free (known as your Personal Allowance). This applies to everyone unless you are fortunate enough to earn £100k+ (see below).

£12,571 – £50,270: Basic Rate Taxpayer – earnings within this bracket are taxed at 20%.

£50,271 – £125,140: Higher Rate Taxpayer – earnings within this bracket are taxed at 40%**…

**£100,000 – £125,140: if you are lucky enough to be one of the 1.2 million people earning over £100k then this is what I call “NO MANS LAND”. Why? …

In addition to the 40% Higher Rate tax rate (highlighted above) you also begin to lose the your Personal Allowance of £12,570 tax free earnings at a rate of £1 for every £2 earned. Ok fascinating (and maths is not my strong point) … What does this actually mean to my wallet and money in the bank?!

Well, effectively the tax rate on any earnings within this range is now 62% due to the loss of your Personal Allowance. Bringing this to life and taking the most extreme example, lets say you get a 25% pay rise or bonus which takes your pay from £100,000 to £125,140 – you will only end up keeping £9,569 of the additional £25,140 – hence £15,571 of tax at a 62% marginal tax rate!

Put another way, from a monthly lens, the additional £2,095 a month only results in an extra £797 in your bank account … a bit disappointing hey?!

Fortunately there are decisions you can make (and should make) to optimise this – Subscribe to the Personal Finance Hub and keep an eye out for the “NO MANS LAND” article coming later this month which will be giving you the simple tools and choices to do this.

£125,140+ : earnings in excess of £125,140 are taxed at 45%

Note, Scotland has different tax rates. Please see details here.