Ndubuisi 'Andy' Egwim explains how the UK's Personal Tax Allowance withdrawal creates a 60% effective tax rate for people earning over £100,000. For every £2 earned above that threshold, you lose £1 of your allowance, stacking with the 40% higher rate to hit 60% total tax on that income.
How to avoid the 60% tax trap. You can download that too, but I'm going to explain it to you. If you earn above 100k, you are already in it. If you don't know, that's why you're wondering what is happening to your pay slip. If you don't earn above 100k, there are levels to this thing. At some point you think that 10,000 is money, then 100k, there are always levels. It's not about the amount of money, it's not about whether you have 1 million in your account. Is are you being a good steward when you have 10k? Are you managing it properly? Now in the UK, when you earn above 100,000 in adjusted net income, the government says, you know what, there's something we are going to do and I'll explain it for everyone here, that works. If you earn £12,570, that's what we call PTA, your personal tax allowance. Okay? PTA, not parents teachers association personal tax allowance. Now if you earn 12, 5, 70 and below, you pay how much tax? No tax. No tax at all. Good. Now if you earn between 12, 570 to 50,271. Just remember 50,000, you pay 20% tax on that income between 12, 5, 70 and 50k. Okay, we'll call that brut. That's basic rate tax. Okay. Now there's a new level that many of you are in and you get to, it's called hrot. And for doctors in the house and nurses, I'm not talking about hormone replacement therapy. Okay? It's higher rate tax. If you cross that 50,270, 50,271, your tax goes up to what amount? 40%. Good. And now when you cross 125,000, it goes up to what? 45%. Now what HMRC, our dear friends, doesn't advertise on their website is the 60% tax. And when we're first writing about it, we're like, what are you talking about? And our article was ranking number one on Google. There is an effective rate of 60% on you once you end above 100K. Why? Because once you earn 2 pounds above 100K, you lose 1 pound from that 12,570-that PTA, you earn another 2 pounds. For every 2 pounds you earn, you lose 1 pound of that PTA. And by the time you hit 125,140, you've already lost the entire tax free allowance.
