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Thursday, 10 April 2014

Thursday, April 10, 2014 Posted by Jake 10 comments Labels: , , , , , ,
Posted by Jake on Thursday, April 10, 2014 with 10 comments | Labels: , , , , , ,

Did they or didn't they? Did the Tories abolish the 50% tax rate, or didn't they. 

Actually, they did and they didn't: 

a) They Did: People earning more than £150,000 have been spared the 50% rate (52% including 2% National Insurance). 

b) They Didn't: People with student loans earning more than about £43,000 are heading for a 51% rate (including 2% National Insurance).

This is illustrated by a graph in the IFS report "Payback time? Student debt and loan repayments: what will the 2012 reforms mean for graduates?" showing the marginal tax rate for people repaying student loans.

Graduates will start paying an additional 9% of their earnings once their pay exceeds £21,000. The 40% income tax rate kicks in at about £43k (assuming 1% annual increases in the upper earning limit). Marginal rate = 40% (income tax) + 2% (NIC) + 9% (Student Loan) = 51%.


Added on 5th December 2014, after the Autumn Statement:
The government announced a new £10,000 postgraduate student loan, starting in the 2016/17 academic year, to be repaid concurrently with the undergraduate loan. The Institute of Fiscal Studies (IFS) calculated the effective marginal 'tax' rate for a postgraduate who took loans for both undergraduate and postgraduate studies. Paul Johnson, boss of the IFS, stated this highly qualified individual once over the £21,000 earnings threshold would be paying 50% as a basic rate taxpayer, and 60% as a higher rate taxpayer:

"it is worth saying that those who take out the loan would face rather high effective marginal withdrawal rates on earnings of 50% for basic rate taxpayers (20% income tax, plus 12% NI, plus 9% repayment of undergraduate loan, plus 9% repayment of postgraduate loan) and 60% for higher rate taxpayers."

10 comments:

  1. To clarify, you only pay the above tax rates on the amount of income you get above the thresholds don't you? i.e. If I was on £50K I'd only pay the 40% rate on the £7K I get above the £43K threshold. Also, I don't think it's fair to call the loan repayments tax, because they are loans you're repaying, which is a totally different concept to tax.

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  2. it is a tax on your income .... what does tax mean .............it would appear to agree with defintions below :
    definitions : a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.
    2.
    a strain or heavy demand.
    "a heavy tax on the reader's attention"
    verb
    1.
    impose a tax on (someone or something).
    2.
    make heavy demands on (someone's powers or resources).

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  3. A very interesting point made. However as pointed out by Beth above, the various 'taxes' have differing thresholds, and the repayment of tuition fees is not strictly a tax. It is however still interesting that a student is contributing proportionally more to the State than a millionaire.

    Considering how the entire country benefits from the University system we have, what are your views on making University entirely State-funded?

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    Replies
    1. Might happen anyway! The student loan default rate is "rapidly approaching the 48.6% mark. This is the threshold at which experts calculate that the government will lose more money than it would have saved by keeping the old £3,000 tuition fee system." http://www.theguardian.com/education/2014/mar/21/student-loans-unpaid-debt-problem-universities-adrian-bailey

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    2. Labour introduced tuition fees in 1998. Before that University was entirely state funded.

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    3. Before then they were funded by all tax payers, not just the ones why had been to university and were now well paid.

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  4. When you factor in that parents on these moderate incomes of £50K to 60K are also losing child benefit and are paying a marginal rate of tax of about 66.5% then adding in this factor of student loans is going to put on an intolerable strain on these earners - better to stay as a couple both earning £30K then you will be laughing. Forget about promotion and extra responsibilities as it just becomes too much - the idea of one parent working less as the other parent for example takes on a UK-wide or Europe-wide role just does not work any more with these tax rates. Oh and dont worry if you are on really high incomes of 2x50K or 2x £100K you will be protected - they like you ! Its just the middle incomes who get targetted ! http://www.dailymail.co.uk/news/article-2257083/Middle-class-families-face-paying-65-tax-rate-Osbornes-incoherent-clawback-child-benefit-IFS-warns.html

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  5. The answer therein is to go freelance, if possible.

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  6. Try calculating the rate for a graduate earning £100k if you want a real shock.

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  7. They did abolish it for students as well... otherwise it would have been 61% for students earning more than £150k

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