Houses for Sale in Glenfield

If you earn more, you’ll be better off. It sounds simple but the reality can be more complicated. Some myths about the effects of taxes on higher income are simply down to confusion. In rare cases though, the benefits of a pay rise may be less than they might seem.

Let’s clear up one major myth right away: the incorrect idea that a pay rise that puts you into a higher tax band leaves you worse off than before.

On the face of it, moving from paying 19% basic rate tax to 42% higher rate tax sounds painfully expensive. However, the Scottish tax system uses marginal tax rates. This means you only pay a particular rate on the portion of your income that falls into the relevant band.

A practical example

This example uses the tax bands and rates for 2023-4 in Scotland: You earn £43,662. The first £12,570 is tax free; there are then tax bands of 19%, 20% and 21% up to £43,662. If you then get a pay rise of £1,000 this extra is taxed at the higher rate of 42%, but note it’s only the extra £1000, not the whole amount.

It doesn’t end there though. There’s a sting for anyone whose income rises over £100,000.

To put it another way, for every extra £2 you earn, your taxable income goes up by £3. It’s charged at the 42% rate, meaning £1.26 extra income tax. Put it all together and the effective marginal tax rate is 63%. Many people joining the six-figure club will take expert advice on options such as increasing pension contributions to reduce tax liabilities.

Student loans

Students who took out a student loan after 2012 have a higher effective marginal tax rate than non-graduates. Any income you have over £27,660 is taxed at an extra 9% towards your loan repayments. Add in income tax and NI and you have an effective marginal tax rate of at least 42%.

Universal credit

On paper you’ll still be paying the 42% rate because the 47% ‘additional rate’ doesn’t start until you earn £125,140. However, for every £2 you earn over £100,000, the personal allowance is reduced by £1.

On paper you’ll still be paying the start until you earn reduced by £1.

Perhaps the most extreme marginal effect is at the other end of the income spectrum and doesn’t involve tax at all. For many people receiving Universal Credit, your payments are reduced by 55p for every pound you earn from work. Those responsible for dependent children or affected by some illness or disabilities get a set ‘work allowance’ (£379 a month if they receive housing support, £631 a month otherwise.) The reduction in Universal Credit only affects your earnings above this amount.

Do YOU run a club, team or association in Glenfield?

If so, why not drop us a line and tell us a bit about it, and we’ll include a free brief mention in the Gazette.

Email: info@glenfieldgazette.com

Thank you to the Litter Pickers of Ellis Park!

AS A regular visitor to Ellis Park, I’ve noticed recently that some of the dog walkers are having a ‘tidy-up’ whilst walking their furry friends.

The park is a lovely space, and it’s great to see people taking a pride in their surroundings, rather than letting the litterbugs win. Let’s keep Glenfield tidy!

I should have told my wife I was referring to her memory before comparing her to an elephant.