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Weekend reading: Higher calling

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What caught my eye this week.

One reason you hear more people complaining about high taxes these days is because more people are paying higher-rate taxes.

At the start of the 1990s, just 3.5% of UK adults were in the upper tax band. That wasn’t exactly fun – and there was a recession coming, with a big housing crash imminent. But least those 1.6 million higher-rate payers could console themselves they were members of an earning elite, of sorts.

Loadsamoney? Not any more. We’ve only just begun to slog through a six-year freeze on tax thresholds that is set to send the number of higher-rate taxpayers to 7.8 million by 2028.

If nothing else it should be a boom time for tax accountants.

Check out this graph from the IFS:

Source: IFS

The higher-rate threshold today starts at £50,270. For the same share of the population to be paying higher-rate taxes as were in 1991, the IFS calculates the threshold would need to be nearer to £100,000 in 2028.

As things stand it will be… £50,270.

There’s an argument that a broader tax base is more equitable and sustainable, I suppose. But good luck raising it in the midst of raging inflation, rising mortgage rates, and disquiet over the state of the public services, especially healthcare.

People can see their money doesn’t go as far as it used to with their own spending, and they’re impatient with what they’re getting for their taxes too.

The UK economy is stagnant and ONS figures show productivity growth has slipped to the lowest level in a decade. (At least energy bills are set to fall – a windfall for both our wallets and also the State purse, given the energy price guarantee.)

Thanks to high inflation and the frozen thresholds, some will even find their incomes go nowhere in real terms1 over the next few years – yet they’ll be taxed more heavily on the top slice of what they do earn, because they’ll be dragged into a higher-rate tax bracket.

It could be you

It’s not a pretty picture, but we only recently did politics so let’s leave that for another day.

Instead I wonder how closely Monevator readers reflect the national statistics?

My instinct is we’re overweight higher-rate payers. Though I guess perhaps a heavier skew to retirees might bring the number back down?

An anonymous poll! Please select according to the highest official rate of UK income tax you pay:

So much for where we’re at today. But if you’re currently a basic-rate tax payer, do you think you’ll be dragged into the higher-rate bracket by 2028?

And if you’re already paying higher-rate taxes – perhaps even the marginal rates the crazy system introduces – are you taking evasive action (such as diverting more salary into your SIPP) to curb the damage?

Let us know in the comments below, and have a great weekend!

From Monevator

Investor compensation schemes: are you covered? – Monevator

Too good to be true: on investment opinion, commentary, and third-party analysis – Monevator

From the archive-ator: Holiday strategies to refresh a frugal soul – Monevator


Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

Government introduces sweeping changes with Renters’ Reform Bill – GOV.UK

Two-thirds of Britain’s mortgage rise pain to come – Resolution Foundation

Renters need £617,000 plus state pension for ‘moderate’ retirement – This Is Money

Annual energy bills should soon fall to an average of £2,053 – Sky

Soldiers to be trained to check passports at UK borders – Guardian

George Osborne to lead £2.4bn investment management firm – Guardian

Fallen darling Purplebricks sold to rival estate agent for £1 – BBC

Rishi Sunak cites… cheaper beer and tampons as the Brexit benefits – Guardian

Vice media files for bankruptcy – Hollywood Reporter

Wait for probate hits at least two months – Which

Products and services

Will you qualify for Nationwide’s £100 member bonus? – Be Clever With Your Cash

Five reasons you’re wrong about switching broadband provider – Which

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Should you spend £229 or £2,149 on a washing machine? – This Is Money

Lloyds’ new £150 current account switching offer comes with a perk – Which

Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

How to fly economy class but feel like you’re in business – Guardian

Homes for sale close to the sea, in pictures – Guardian

Stealth wealth mini-special

There’s no secret to how wealthy people dress – The Atlantic via MSN

The quiet luxury of language – Dror Poleg

Comment and opinion

Why has the equal weighted S&P 500 index beaten the market cap weighted? – Morningstar

The spectrum of financial (in)dependence – Morgan Housel

Was a ‘price-price spiral’ behind the inflation shock? – Stay At Home Macro

Era of “massive” UK house prices near end, says OBR economist – Guardian

Can we ever really have enough? – Forbes

The pandemic was an experience in hedging your life – Financial Samurai

Halving inflation isn’t going to transform Tory fortunes – David Smith

The problem with investing in bond indexes [Podcast]Peter Lazaroff

An overview of factor investing and its pros and cons – Humble Dollar

Active outperformance: luck or skill? [Spoiler alert…]T.E.B.I.

Protecting seniors – Humble Dollar

Naughty corner: Active antics

Six ways that UK equities look like a bargain – Schroders

Investing in wind farms, motorways and phone masts [Search result]FT

Finding quality stocks using profitability ratios – UK Dividend Stocks

Concentrating on the best – Verdad

Something’s gotta give: investing ahead of deglobalisation – Sapient Capital

US small caps look cheap versus large caps – Janus Henderson

Look beyond expensive US stocks, says GMO – Institutional Investor

The coming Greek ‘megacycle’ [Search result]FT

The Winner’s Game – Investment Talk

Kindle book bargains

The Moneyless Man: A Year of Freeconomic Living by Mark Boyle – £0.99 on Kindle

200 Years of Muddling Through: The British Economy by Duncan Weldon – £0.99 on Kindle

A Journey Through Labour’s Lost England by Sebastian Payne – £0.99 on Kindle

Too Big To Jail: The Greatest Banking Scandal of the Century by Chris Blackhurst – £0.99 on Kindle

Environmental factors

Where to find the energy to save the world – Wired

UN: world likely to see hottest year on record in next five years… – Axios

…at least saving the Ozone Layer stopped it being even worse – Hakai

Could restaurants solve the world’s jellyfish problem? – BBC

The first really awesome biodiversity-meets-investing resource – K.O.I.

Octopus and L&G make £70m in UK heat pump manufacturer – This Is Money

Crypto o’ crypto

A retrospective on the crypto runs of 2022 – Chicago Fed

One million individual wallets now hold a whole Bitcoin – CoinDesk

Robot overlord roundup

The coming AI battles at the international level – Stratechery

What ChatGPT means for investment professionals – CFA Institute

Searching for investment answers – Humble Dollar

Example of someone already taking the guardrails off an AI model – Eric Hartford

ChatGPT can’t do much for everyday investors yet… – Savant Wealth

…but could enable radical visual strategies in the future – Institutional Investor

Off our beat

How England’s seaside towns became both a trap and a refuge – Prospect

Choose the activism that won’t make you miserable – The Atlantic via MSN

How Formula 1 became the world’s fastest growing sport – Huddle Up

He told followers to starve to meet Jesus. Why did they? – N.Y.T. via Yahoo

The ‘return to the office’ won’t save the office – Vox

And finally…

“He who has learned to disagree without being disagreeable has discovered the most valuable secret of negotiation.”
– Chris Voss, Never Split the Difference

Like these links? Subscribe to get them every Friday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.

  1. That is, inflation-adjusted. []
{ 79 comments… add one }
  • 1 Hariseldon May 20, 2023, 10:37 am

    As an early retiree I am a non tax payer and have been for 15 years, that will change over the next couple of years (state pension).

    When working I paid a lot of tax, we have an interesting tax regime that allows this.

    On the flip side, on my demise there will be a seven figure inheritance tax bill.

    I make no effort to mitigate this. I rather like the idea of low tax when you are living and higher tax when you are gone…

  • 2 StellaR May 20, 2023, 11:26 am

    I retired last year (which wasn’t the best timing as inflation started to rocket at the precise moment I no longer had annual pay rises to look forward to!). So the prospect of ever higher taxes is not attractive. Of course my plan was stress-tested, so I won’t be forced back to work, and I’ll have the state pension and a work DB pension from the end of the decade. But with thresholds frozen until 2028, and inflation likely to persist above 2% (arguably), I’ve worked out that despite having been a basic rate tax payer all my life, I’ll be paying higher rate tax on my combined pension income. As a result I’m drawing down my SIPP faster than planned in an effort to keep my total income below the £50,270 threshold. The excess income between now and when the other pensions kick in will go into ISAs primarily, followed by taxable accounts. Navigating CGT and dividend tax on the taxable accounts may prove complex, but at least it’s something I can control to an extent, by investing in (for example) investment trusts paying relatively low dividends, and harvesting gains / losses per the very useful Monevator articles on this subject.

  • 3 faithless May 20, 2023, 11:56 am

    Yep, a promotion at the start of the calendar year will push me into higher rate this tax year. HICBC will also bite as I’m in that awkward 50-60 bracket.
    Had done rough calcs for AVCs to take me down to £49,900.

    Then realised in the last few weeks:
    – I hadn’t costed in any inflationary pay increase, tbc but approx 4%. All of that will have to go to AVCs

    – I’ll be paying tax at 40% on my savings interest beyond the £1k and this uncle counts towards HICBC income – or lose £500 of the tax free savings allowance if I screw up the calcs, which would bring even more of my savings interest into my taxable income calc for HICBC.

    I’ve got a lot of cash outside ISAs bc the rates on Cash ISAs have been so dire the last decade, and I’ve been a bit too cautious in wanting a large cash buffer in case of life happening so have underinvested in my S&S ISA.

    Decided to move some excess cash in chunks into my S&S ISA, but this will max out my ISA allowance, so can’t move cash into cash ISAs to make it non taxable income!

    Wish I’d had the energy and foresight to consider this last tax year when I had excess ISA capacity!

    I kinda feel like AVCs aren’t really ideal for me as I’ve a DB pension which will be more than sufficient even if I quit 15 years early.

    Also spouse is in similar income position so we need to both make the same choice otherwise I’d do all of that planning for nowt. With the added complexity that it’s really hard for him to compute necessary AVCs due to a not-guaranteed bonus at end of year.

    So we could just suck up the tax and lost HICBC…
    Or I may end up dropping a day at work next tax year after I have child #2, purely for tax reasons. Some of that lost income will be offset by saving £85/day childcare cost for 1 baby in nursery.
    Though honestly, I’d probably rather work F/T.

    Still, good problems to have.

  • 4 Mr_B May 20, 2023, 12:12 pm

    Have been very fortunate to be an early retiree. Paid the 40%/45%/60% tax on the vast majority of earned income during a 30 year career. The 60% wasn’t particularly motivational but offset by also being to put significant amounts into pensions with the associated tax relief. Now by balancing income between myself, my spouse and ISA income we can stay in basic tax bands and still have a comfortable level of income. I dont want to pay 40% again and I’ve hopefully got c 20 years left in the tank, so the focus moves to passing it on to children and other causes, when they need it most in their lives (houses, grand-children, energy bills and building their own retirement plans). The 50K limit is way too low, esp with the child allowance clawback, should at least be £70k if not higher.

  • 5 Grumblebum May 20, 2023, 12:12 pm

    Retired for 15 and 10 years and now in our mid-70s (FIRE did not seem a possibility at the time) we are now basic rate tax payers thanks to state pensions and modest employer pensions from a number of employers before self-employment. Nearly all our financial resources are in ISAs and IFISAs and SIPPs. I can think of no reason for SIPPs being outside the Inheritance Tax catchment, but it makes sense not to touch them ahead of disinvestment from ISAs and IFISAs if there is motivation to leave resources to children/grandchildren. If we live another 15 years (statistically and genetically quite likely) our children will be well past the age at which receiving inheritance will be much of a benefit. Ironically, if we take this option, we can/should adopt a very long term investment policy of 100% equities – after all, conditional on consistent tax policies and the world not coming to an end, it may be our great grand children who could benefit from our SIPPs.

    The other option would be to cash in the SIPPs as quickly as possible whilst staying within the basic income rate and give the money to grandchildren (or other (more) worthy causes) at a time in life when it could make a worthwhile difference to life or life chances.

    In the highly undesirable outcome that one or both of us will need residential care, then, as a last resort, our house should cover those costs. And so it should. The untaxed gains through owning our four houses in sequence from the early 1970s without any effort or risk should certainly not be automatically passed on to our offspring untaxed in my view.

  • 6 Boltt May 20, 2023, 12:15 pm

    It’s interesting to look backwards at the tax free allowances and std income tax rates:

    1981. £1395. 30% (33% in 1979)
    1991. £3295. 25%
    2023. £12570. 20%

    Currently around 36% of adults don’t pay income tax – I’m pretty sure it was lower historically.

    The rather huge tax free allowance and reduced basic rate seems to be a key driver of the higher “standard” rate of 40% (it’s probably kinder not to mention student loan!)

    @StellaR – wow, a lifetime basic rate tax payer being HRT in retirement. That’s amazing. Hit that ISA hard.

  • 7 StellaR May 20, 2023, 12:31 pm

    @Boltt – quite! Of course the ISA contribution limit is also frozen and likely to remain so, which will reduce the effectiveness of that strategy over time. And yes, I never imagined that HRT would be a concern for me.

    Regarding the 36% not paying income tax, those people will be paying more tax in the form of VAT (for example) – as prices rise, so does the take from consumption tax.

  • 8 Tax credits May 20, 2023, 12:44 pm

    I could easily be a 60% marginal rate payer, earning 125k. That’s my full time salary. PAYE would leave me with about £6400 p/m

    There is absolutely no way that’s worth bothering with though.

    So, down I got to three days per week work, and get paid 75k. I still resent paying higher rate tax on that salary in the south east, where housing is so expensive though.

    So in to the pension via salary sacrifice goes 40k, which costs me 30k net because of employer contribs and emp NI kickback.

    Now I’m down to 45k as PAYE income. But, my household on that level qualifies for tax credits, and quite a lot, because of a severely disabled child.

    So now we get £750 per month on top back from the state. As we get child benefit worth about £280 per month, as I’m no longer a higher rate tax payer.

    So, we net about £4k, rather than £6.4k. but – I am also putting £3.3k per month into the pension. So I’m well up. Even in the situation where I lump my net 30k into the pension as full time, we’d net around £5.3k p/m in the here and now. £1.3k per month for an extra 2 days work? Why bother?

    My effective hourly rate is massively better working part time. My gross suggests I am paid £555 per day. I’d be doing those extra days for a net £150. Forget it.

    Last year I got a £10k bonus and donated the whole lot to charity because i wouldn’t have seen the benefits anyway. I’d have actually lost money to take it between 50-60k!

    So….why wouldn’t anyone do this if they were in my situation? Don’t say ‘ethics, or pride, or paying your own way’. The tax rates are nonsense. Between 19k and 50k, my marginal rate is 73% becausenof tax credit tapering. Between 50-60k it’s 116% because you can add in child benefit charges. No point.

    The real high tax is housing. If housing was fairly priced, I would not begrudge paying tax. But it’s so manipulated and propped up, no way. I’m protesting. I will minimise tax until they stop helping landlords.

    I appreciate this is a very cynical post. And by someone in a situation where they don’t need to play the system hard. But I do it because I believe it’s ethically correct.

    Don’t financialize housing. Don’t pay corporations subsidies so they bring down wages for the lower paid. But if you create such an abhorrent system, I’ll show the idiocy of it.

  • 9 Pikolo01 May 20, 2023, 12:57 pm

    I’m a higher rate tax payer, but I wish my rate was 40%… it’s 42%. Thanks Scotland!

    To make things worse, the threshold for higher rate tax is lower, at £43k. Which you might notice overlaps with the full, untapered national insurance rate of 12%. As a result, the highest marginal tax rate you can pay in the UK is a whopping 54% (42% Scottish higher tax rate + 12% national insurance), for incomes between 43k until £51k. Getting a raise above that gets you on 44% marginal income tax until you hit £100k.

    For comparison, English additional rate tax payers pay 47% (45% English additional income tax + 2% National insurance), and Scottish additional rate taxpayers 49% (47% Scottish additional income tax +2% national insurance) marginal tax rates.

  • 10 Matthew May 20, 2023, 1:23 pm

    Fiscal drag (and austerity) can be an anti-inflation tool vs raising interest rates – to take money out of the system without increasing the cost of borrowing – particularly if you wanted to keep gilt yields as low as you can, in doing so keeping corporate bonds and mortgage yields lower

  • 11 Jura May 20, 2023, 1:35 pm

    @Pikolo01 unfortunately it gets worse at a marginal rate of 62% (or is it 63?) when you get above 100k in Scotland!

  • 12 tfos May 20, 2023, 1:40 pm

    Believe the higher rate threshold for 23/24 is £50,270 rather than the £50,570 quoted – only a minor difference.

  • 13 Andrew May 20, 2023, 1:40 pm

    Additional Rate payer here. I know it’s a bit sickening for those of us in the top percentiles to whinge, but I didn’t see base or bonus pay increase in 2022 or 2023. In fact, almost nobody at the company (of over a thousand employees) did… so I’m not sure where this so called wage-inflation spiral is really taking place.

    I’m leaning on Hunts pension changes this year as a mechanism to effectively claw back some future buying power during this stagflationary period, so I’ll be putting the full £60K/yr away this year and next. Given all the tax and employer contributions the take home would be less than £24K.

    On salary growth, something has to give. My mortgage is fixed for 4 more years and just to keep up with the increased interest payments I need at least 5-6%/yr salary growth from here on out. So effectively I’m looking at 5 years of stagnation in my standard of living _at best_.

    As a teenager if you’d told me I’d be earning what I am now I’d have thought my life involved tropical beaches and cocktails. The reality of present day Britain is far from that. Expensive holidays are off the cards for the next 5 years, we’re having to save for home improvements just like everybody else, and the household bills are definitely being felt. Everything is relative.

  • 14 Andrew May 20, 2023, 1:47 pm

    Another sharp fact about the state of the UK economy and wages:

    Real (inflation adjusted) median house prices (~£290K) in the UK are lower than in mid 2007 (~£190K ish)… and interest rates are still lower now, even after 12 rises.

    People are complaining about the wrong thing. The problem is and always has been wages not keeping up.

    Median house prices 8-10x median earnings because wages in the UK _suck_

  • 15 G May 20, 2023, 1:53 pm

    Having once got burned, I stay well out of the higher tax brackets by working less and salary sacrificing to pension (no longer to the max, but once upon a time I was bumping into minimum wage requirements).

  • 16 vin May 20, 2023, 1:54 pm

    @Tax credits.
    That’s pretty much exactly what I’ve done, with the same reasoning on my end.

  • 17 John May 20, 2023, 2:08 pm

    I am not earning enough to make the Basic Rate level, so went with the first option, though that looks like it is for non-UK folk.

  • 18 The Investor May 20, 2023, 2:16 pm

    @tfos — Yes it is — thanks for the correction — stupid typo! 🙁 (Maybe I should spend our membership earnings on a sub editor!)

  • 19 Al Cam May 20, 2023, 2:41 pm

    @StellaR (#2):
    I am reasonably familiar with the problem you describe. Could you say how your DB pension will revalue until it comes into payment?

  • 20 Boltt May 20, 2023, 2:51 pm

    @ Andrew

    Great figures – I think productivity is our problem (are we worth higher wages v world wide competition?):

    Part-time, 4 day work-week with 5 day wages, WFH, serious tax optimisation by the likes of us, too much nonsense in the work environment, benefits culture, too much free stuff, dual housing market (council/social v open market), entitlement culture, 50% going to uni etc ….

    I do worry about the UK’s future, I’m trying to encourage the kids to emigrate

    Ps delete if OTT

  • 21 StellaR May 20, 2023, 2:59 pm

    @Al Cam, the DB pension is index-linked (and there’s currently still a triple lock applied to state pension increases) hence the combination of re-rating of those pensions combined with SIPP withdrawals at the rate I had planned would tip me into the higher bracket at that point, assuming the thresholds remain frozen and inflation stays higher (3% or lower and I might still remain in the basic rate band).

    Of course I’m fortunate to have an index-linked work pension in the mix, and I know others are worse off in that regard, but having only received basic rate tax relief, it seems prudent to try to avoid drifting into the higher rate band by accident if I can avoid it, since it also reduces other tax allowances.

  • 22 Marco May 20, 2023, 3:10 pm

    It’s not really worth having taxable income above 100k unless you can earn way higher or the work is very easy. Despite my public sector employer being desperate for me to do more, it’s just not worth it after tax.

  • 23 Dave S May 20, 2023, 3:32 pm

    For people still working, the difference between basic rate tax and higher rate tax is only 10% once you include National Insurance, isn’t it? (Combined tax of 32% vs 42%.) You’d rather not pay the extra, but I’m not convinced it’s worth locking money up in a pension for decades solely to avoid it. (I appreciate there may be other implications for those with children or large amounts of unsheltered savings.)

  • 24 slg May 20, 2023, 4:18 pm

    Some great comments in here!
    I hopped out of the public sector after languishing (very worthily) there for 9 years. After 4 years in private sector, I am on 250% my old wage and well into HR tax bracket for the first time ever.
    I havent paid a penny of higher rate tax yet. Every pay rise goes into salary sacrifice pension to avoid this. I have a weird half cringe / half celebrate moment when I email payroll to change my pension contribution percentage. I had a wobble about potential changes to pension age with the increase required for early retirement pots outside pension but havent changed my strategy yet.
    I dont see it so I dont spend it so I dont miss it. Sitting in a sunny backgarden with a cider, my beautiful wife beside me, the kids at a scout camp, the trees rustling and my weekly installment of monevator on my laptop, all is well in the world here.
    The pursuit of FI gave me this buffer. It seems wrong not to enjoy it as part of the journey of life! Have a wonderful weekend everyone 🙂

  • 25 James May 20, 2023, 5:54 pm

    With bonus and overtime I earn around £125k/year. Needless to say I’m not prepared to pay effectively 62% taxation on that excess 25k so sacrifice sufficient into my SIPP to bring myself down to 100k.

    I suspect many others do the same, but the flipside of it is that we’ll probably end up with way more in our SIPPs than we’re ever likely to spend in our lifetimes. So yes we may save tax this way, but die with a pot of gold. It would be nice if the tax rate were more reasonable so we’d be prepared to pay the tax and enjoy the earnings today.

  • 26 WN May 20, 2023, 6:03 pm

    Cuts to annual CGT allowance and general direction of UK taxation has already made UK tax residency unfavourable, so I have already made plans to reduce UK tax. In various contexts £1m is usually used as a lazy synonym for ‘wealth’, normally accompanied by the words ‘tax’ ‘fair’ and ‘share’. When those three words combine in UK tax policy it’s always the comfortable middle class that are the easy target, never the genuinely wealthy. So if any form of wealth tax on assets or property is introduced, then it will be time to move again.

  • 27 Andy May 20, 2023, 6:16 pm

    As someone who is mid 30s and is well into additional rate on income, watching every budget close the doors on efficient tax planning is pretty galling, particularly when it’s done by privileged Boomer/Gen X Ministers who have had years of topping up their pension portfolios and building BTL empires.

    A few examples of the deterioration since 2007 – there’s a lot of cynicism here but it’s frankly well placed:

    – VAT increased by 33% from 15% to 20%
    – Introduction of an entirely new 45-50% additional rate
    – A static threshold for the additional rate since 2010, and subsequent recent reduction to £125k. If the additional rate had increased with inflation, it would now be sat at £216k
    – introduction of personal allowance tapering and also the maintenance of a static threshold for this taper at £100k for over a decade, bringing more and more into a punitive 60% tax rate. Had this threshold risen with inflation it would now be at c. £150,000
    – additional home stamp duty penalty (of course no penalty to those Ministers with BTL empires because SD is a buyer tax on acquisition only, as opposed to land value or similar taxes)
    – severe reduction in pensions annual allowance (£250k down to £50k, then £40k for a while and recently increased to £60k)
    – introduction of pensions annual allowance taper in 2016 and subsequent further reduction to £4k, recently increased back to £10k (of course those Ministers that have built up a large pensions pot pre-2010 and benefited from QE in its meteoric rise now have the luxury of no LTA. It’s also easily avoided by contractors and the self-employed, leaving PAYE to bear the brunt)
    – Health and Social Care Levy (of course, n/a to wealthy pensioners and landlords as they don’t pay NI). Sensibly repealed.

    The only thing I can think of that bucks the trend is ISA limits, which have increased by 50% in real terms since 2010, and perhaps the recent increase (albeit it remains a decrease in real terms) in the pensions AA for those lucky enough to fall under the AA taper.

    The fact is this country’s economy has never recovered from the GFC (Brexit gets a lot of prominence with some justification, but the fact remains the economy has been on life support since the GFC – Brexit is a recent phenomenon but the problems are far more endemic). The economy has lumbered along since the GFC with nil growth, with its middle class paying more taxes but satiated by ZIRP and the resultant asset (house) inflation in lieu of any wage growth for them and the lowest class kept quiet by becoming ever more reliant on the state with their being pulled out of income tax completely and further reliant on tax credits to top up paltry wages*. In short, our economy has been a housing market with an economy attached since 2008, with an increasing reliance on PAYE to plug the gap lest we scare entrepreneurs.

    Working has not worked for over a decade. However, the sticking plaster of ZIRP is now finished and higher inflation and interest rates are here to stay. This country faces a lot of challenges, as absent asset inflation it’s going to find that it cannot continue to tax small (albeit increasing) sections of the population disproportionately highly whilst delivering awful public services. The tax will need to come from elsewhere, but with a hyper mobile global population this will remain a challenging problem.

    *it should be said that paltry wages for the working classes was a problem pre-GFC due to cheaper labour from the continent.

  • 28 ZXSpectrum48k May 20, 2023, 6:37 pm

    I’ll only work 3 months in 2023/24 since I’m off for the bulk of the year while my non-compete agreement expires. Despite that, the sign-on bonus I will get toward year end will create a £2.5mm income tax bill. Reading all the cunning plans on here to reduce tax liabilities, however, I think I might just elect to keep the money offshore and just pay £50k income tax on the salary component. That would be first time I haven’t been an AR tax payer since it was introduced. Having paid over £6mm in income tax over the past 5 years, based on the comments here, it seems I’m the only idiot left in the room!

    How is all this tax avoidance and working less hours/days going to pan out? The Old Age Dependency Ratio is going from 300 to 400 is the next 20 years (a third more old people to support for every person of working age). The demographic change hasn’t even got going yet. From 2027 it will really start to rip. Old people got a 10%+ pay rise this year and they will get another decent one next year. Those with generous DB pensions got double bubble. Sustainable? I think not.

  • 29 Al Cam May 20, 2023, 7:16 pm

    @StellaR (#21):
    Reading between the lines, your anticipated DB pension plus state pension is less than the currently frozen HR boundary – but possibly close to it. This is the good news, as once these pensions have started you tax payer status is pretty much ‘nailed on’ for the rest of your life.

    Prolonged runaway inflation prior to taking your pensions would just serve to make matters ‘worse’.

    Before flattening your SIPP prior to commencing your DB/SP combo it would be wise to ensure that you do not want to make use of any of the SIPP IHT possibilities.

    Also, the devil is almost always in the details with DB schemes so I would suggest you get a full understanding of what “‘index linked” means for your scheme. Some schemes describe statutory revaluation (SR) as index linked whereas in reality (for most people) SR uses CPI and is capped at a maximum of 2.5%PA cumulative.

    Are you familiar with the terms revaluation and indexation? If so, it is worth noting that in DB schemes they may use different schemes, and any such asymmetries can be important.

    Taking a PCLS from your DB scheme might be helpful too.

    Threading this needle is like tackling a multi-headed beast and just to keep you on your toes the rules keep changing too!!

  • 30 StellaR May 20, 2023, 7:28 pm

    @Al Cam, thanks for the pointers. I think I understand what revaluation and indexation mean, but I will check again to make sure.

    The DB Scheme increases by CPI each year with no cap. You’re right that the combined value of DB + SP alone would be below the HR threshold based on inflation exceeding 3 or 4% between now and the end of the decade, and tax thresholds remaining frozen until 2028.

    The good news is that I don’t have any IHT issues as my estate will all go to charity, so I think it makes sense to run the SIPP down now, as long as I’m investing excess income in the ISA and GIA. I can keep it under review and make changes if inflation is lower or the tax thresholds end up being lifted.

    But yes, the constantly changing rules are very annoying!

  • 31 StellaR May 20, 2023, 7:32 pm

    …It also occurs to me that there must be lots of people in my position (i.e. at risk of becoming a higher rate tax payer in retirement), who aren’t aware of it because they haven’t run the numbers. If I didn’t like spreadsheets so much I wouldn’t have had a clue!

  • 32 AboutToPressTheButton May 20, 2023, 7:47 pm

    I thank my sudden awareness (source unknown) of the 60% marginal rate about 10 years ago for me upping my pension contributions to the level which has made an early retirement a potential reality – can’t remember what first brought it to my attention but it made it a no-brainer which is always helpful. We’d just started a fairly lucrative side-hustle that pushed me into this zone – it was property related, no way of doing ltd company stuff – regrets, I have a few) Was surprised to hear a work colleague the other day who had just heard of the 60% marginal rate, and he’s earned more than me for about a decade so I’m sure he’s been paying it.

    I always think the other benefit of income foregone for FIRE purposes is that you dont need to replace it when you go into draw down. Double upside.

  • 33 Martin T May 20, 2023, 8:03 pm

    @ZX I suspect you are more or less single-handedly keeping the country solvent. If you decide to leave, please turn out the lights behind you.

  • 34 aoedae May 20, 2023, 8:15 pm

    I’m hovering on the top edge of the basic rate band – enough that if my company hadn’t suspended all bonuses I’d be looking at maybe sacrificing some more into my pension to stay below it. Of course, I’m also paying 9% student loan on any earnings over £22k. I definitely expect to be on higher rate by 2028.

    In terms of how it feels as a lifestyle to be at this level of salary: it’s good in terms of quality of life (good food, public transport, nice UK holidays), except that the process of saving for a deposit is so painfully slow.

    As ever, housing is the tricky component. To buy, I have to pay x6-7 my salary to stay in my home area. I’m very lucky to have a partner who is older and who owns, so for now I live with them and pay them rent plus half bills as if I’m in a house-share, which is a much appreciated buffer between me and the open maw of the rental market.

  • 35 Tax credits May 20, 2023, 8:53 pm

    Pleased to see – and also a little shocked, there haven’t been many comments labelling me an abhorrent immoral sponger for feathering my SIPP and working part time!

    Most interesting is that so many comments here including my original have mentioned lack of affordable housing as a key factor in finding ‘alternative’ ways to build wealth or do things that others are not.

    I have long preached that most can’t hope to 1) have a family, 2) own a house and 3) save for retirement any longer, but when I started saying that ooh, nearly 18 years ago after housing had already become very expensive relative to wages, I never thought it would get to the point where 100k+ earners would be included in having to make choices between the three options.

    Yet here we are, at least in the south east.

    Pick two at best. Pick one if you’re earning under 50k.


  • 36 JP May 20, 2023, 8:59 pm

    Seems to be another thing to consider if one is or is likely to become a higher rate taxpayer in future, is how this impacts one’s capital gains tax rate on any future disposals made outside of a pension. As far as Im aware (happy to be corrected by the experts!), there may be scope for reducing the capital gains tax rate on disposals by making pension contributions to keep income sufficiently within the lower band, or by ensuring gains are harvested while still a basic rate (or non) taxpayer. Perhaps worth investigating at least. As I say, I am not an expert on this, and may be things have changed, but I would certainly look into it further to see what’s possible witthin the tax rules, if I had capital gains to realise.

  • 37 Fatbritabroad May 20, 2023, 9:20 pm

    I earn bang on a 100k a year Inc car allowance so have been hammering my pension and always did even when a brt payer up until age 34 (now early 40s) . But I’m now in a fixed wage job with no increases since Jan 2021 with a potential substantial bonus with a pe backed company if it all goes well (big if) in a few years that will be subject to cgt rather than income tax . Decided to take a risk while i could .

    I’m possibly unusual in that I now regret putting quite so much so early into pensions ( particularly when a basic rate tax payer when the advantage is more marginal) as I have a goal of being fi by 50 . Partner and I have well over 400k in pensions ( a cracking real life example of the power of compounding at work ) the vast vast majority of which is in my pension.

    So I’ve been building decent (£300k now inc a year in cash) s and s isas over the last few years and have just put my pension contribution down to just 10% for the first time since my early 20’s to really go for this before inflation impacts my ability to build after tax wealth or if I lose my job as I’m likely to be substantially worse off in the same role in another business ( maybe 70k to 80k if I’m lucky) . Bloody worse time to do it from a tax pov . First world problems cue tiny violins all round.

    I can always go back and add to pensions later but I’ve been solely optimising based on tax for years and belatedly realised that’s not the only consideration. I wonder how many others are in the same boat. Its been the first time I feel properly well off having decent liquid assets I can access. I couldmake more overall using pensions but having the flexibility at my age with a young child and a mortgage that I can now pay off whenever I like is a great stress reliever and I don’t regret it one bit

  • 38 The Investor May 20, 2023, 10:31 pm

    @all – Interesting comments everyone. The reason I linked higher-rate taxes to inflation and the general cost of living et cetera is because (and this is not rocket science!) those higher-rate pounds aren’t the cream they were anymore.

    Of course those of us who are paying higher or additional rate taxes are doing much better than the (working) majority on basic rate taxes, or worse.

    But take a young-ish high flyer on £100,000 a year who takes no mitigation measures. According to MSE’s calculator, that delivers £5,587 a month as take home pay.

    Consider too that to buy, say, a two-bed flat in Zone 3 in London where they are likely to be earning that £100,000 now costs at least £500,000 and likely more.

    A vanilla 4.5x salary multiple would enable them to borrow £450,000. Rates have gone up, let’s say they fix at 5%. That’s £2,600 a month.

    So their £100,000 a year is giving them £3,000 a month for everything else after housing costs. Again, way better than most people — I’m not forgetting that — but equally it’s very easy to see why the incentive to save/mitigate every £1 is there in a way that someone earning £100,000 in 1994 might not have felt after £80,000 or so (when you could buy a two bed flats in Zone 3 in London for less than £80,000…and obviously nearly everything else was cheaper too).

    I can see why the genuinely very wealthy with a social conscience might find it a bit frustrating that they are paying a bunch in taxes while today’s “just into” higher-rate taxpayers are scrabbling around trying to fund their SIPPs etc.

    But it’s undeniable that these marginal £1s saved are much more meaningful on £50,000 a year than £500,000 a year etc.

    Again, all high-class problems versus someone being fed by a food bank. But it doesn’t detract from the point, especially re: housing, which has been well-made already in this thread.

  • 39 Al Cam May 21, 2023, 12:33 am

    Re revaluation vs indexation and many, many other things relevant to private sector DB schemes, see: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/595103/security-and-sustainability-in-defined-benefit-pension-schemes.pdf

    Re your comment #31: spot on!
    I suspect lots of folks do not think this through and only some of them realise the potential consequences before it is too late. At least the LTA had gone, for now at least!

  • 40 Al Cam May 21, 2023, 6:32 am

    LTA abolition as of 6th April 2023 is good news; however, frozen PCLS is an interesting twist.

    Re: ISA subscription limit:
    Entry 59 in Section ‘Policy Decisions’ at: https://www.gov.uk/government/publications/spring-budget-2023/spring-budget-2023-html
    apparently means the ISA subscription limit will increase by CPI from tax year 24/25

  • 41 Al Cam May 21, 2023, 6:52 am

    @ATPTB (#32):
    Re: I always think the other benefit of income foregone for FIRE purposes is that you dont need to replace it when you go into draw down. Double upside.

    Yup, agree 100%.
    Also, once you jump ship you may find you actually need less than that too! We did. However, I should add that it took me a good few years to accept this as being real – in spite of being well aware of the phenomena prior to retiring. As @TI mentioned recently, living something really is rather different to knowing about something in advance.

  • 42 Boltt May 21, 2023, 9:39 am

    Here’s some interesting average tax+NI rates by income level 23/24 tax year (col A):

    A B C
    £12.5k 0% 0% 37%
    £25k 16% 46% 66%
    £50k 24% 85% 90%
    £75k 30% 94% 96%
    £100k 33% 96% 97%
    £125k 39% 97%
    £150k 40% 98%
    £200k 42% 99%
    £250k 43%

    A) average tax rate for tax year 23/24
    B) earning percentile for tax payers 20/21
    C) earning percentile for adults using 37% non tax payers ~22/23
    D) add what percent of Uk income is paid…..

    The press always focus on the 60% tax rate without being clear it’s only on income £100-125k. Clearly annoying and a great tax relief opportunity, but for me the average rate shows the important number.

    I preferred to think of the TFA removal as a £5k fine/gift – and focus on earning more.

    Adding the earning percentiles is just plain scary – the readership here are massive outliers v gen. pop.

    Currently living in Spain for a month as a Expat dry run….

  • 43 Boltt May 21, 2023, 9:42 am

    A. B. C
    £12.5k 0%. 0% 37%
    £25k 16% 46% 66%
    £50k 24%. 85% 90%
    £75k 30% 94% 96%
    £100k 33%. 96% 97%
    £125k 39% 97%
    £150k 40%. 98%
    £200k 42%. 99%
    £250k 43%

    Tabs removed spaces added (hopefully works better )

  • 44 ZXSpectrum48k May 21, 2023, 10:04 am

    @TI. The problem is were getting into a nasty feedback loop. As everybody takes “evasive action” as you put it, the tax take will fall and tax rates will rise again. As immigration is deeply unpopular (and causes infrastructure issues) that isn’t an option. Cutting the state pension or a supertax on DB pensions isn’t happening. So the burden always falls on the worker. Most especially the PAYE worker who has far less options for avoidance.

    What I see in my industry is far more people upping sticks and going abroad. It might be to Jersey or Dubai for explicit tax reasons. But COVID also showed, though, that moving to a Med country with a lower tax deal also can work (plus it’s sunny). There is a real acceleration in the number doing this in the last few years. These people are all AR taxpayers.

    I’d contrast the current situation with the introduction of the 50p tax rate after the GFC. People moaned like hell but only a few actually moved to Zug. Most of them then came back once they realized how dull Zug actually was when compared to London.

    I feel it’s different now. People seem just far less enamoured with the UK (or even London). They feel the UK is a more hostile environment for people with their worldview. I know you don’t want politics but I do think the “B” word did change perceptions of the UK.

  • 45 StellaR May 21, 2023, 11:27 am

    @Al Cam – thanks for the link

    @ZXSpectrum48k, I agree it feels different this time. It may be partly the B word, and perhaps a sense that the UK is no longer so business-friendly, but maybe also the Laffer curve in action? When there is a general perception that taxes are fairly reasonable and thresholds are rising, people don’t mind paying them, and if inflation is also negligible, even stagnating wages don’t make too much difference. But with taxes and inflation where they are now, and real wages not increasing dramatically (and the prospect of the situation getting worse over the next several years), there’s much more incentive to protect what we have, and, importantly, a perceived unfairness. The threat of a wealth tax under Labour may also be a factor. Unfortunately emigration is not a realistic option for much of the middle classes so all we can do is manage our affairs as efficiently as possible.

  • 46 SemiPassive May 21, 2023, 12:40 pm

    My earnings have been all over the place, when contracting a few years back I was relaxed about paying 40% tax but not that sneaky marginal 60% so would make sure I made enough pension contributions to avoid the personal allowance taper.
    As a permie I earn lot less, but I have now got to the stage where I don’t even want to pay 40% income tax (well, it’s actually 42% isn’t it with employee NI).
    My employer only started offering a salary sacrifice pension scheme last year, so I have started ramping up pension contributions as much as I can afford and avoiding the 40%.
    But the maths shows it is still not going to be enough for early retirement.
    So we are finally going to take the plunge with downsizing, while I am still working instead of waiting until retirement. We have far too much house for our needs, and it has a mortgage on it, so downsizing now will do four things:
    1) wipe out the mortgage and thus increase disposable income,
    2) free up enough cash on top to fill a few years of ISA allowances for both myself and spouse
    3) enable me to make increased salary sacrifice pension contributions to make retiring 5 or 10 years earlier possible, and
    4) avoid the worst of a house price crash which could wipe out some of the chunky equity that makes it all viable.
    We will be embracing some aspects of minimalism along the way, and have already started the decluttering journey, selling crap on ebay, etc.
    A life on a tax efficient (mainly SIPP and ISA) £40-50k income with super low living costs can be a lot happier, richer and abundant than a horrifically taxed over leveraged one with a £100k+ income and high living costs.

    Having more house than you need has worked out very well over the last few years, but as some of your links mention, the big gains are already in, and the risk is very much now of a longer decline in house prices as the remaining people on fixed rate mortgages roll over. There is also the underlying demographic of boomers owning larger more expensive properties dying off.
    That trend will have a way to run though, as the two offers received on our house have both been from retired boomers with no mortgage required (so some people are even upsizing or same-sizing into retirement!)
    Such buyers are oblivious to interest rates, and this is one reason why we haven’t seen a house price crash yet, along with the high % of people who took out 5 year fixes at rock bottom rates who have yet to feel any pain (myself included).
    So I’m convinced house prices will drop harder next year, but I’d never bet the farm on it and go into rented, which ties into your ThisIsMoney article.

    One more potential link you might have liked, a Telegraph article on how unlike the rest of the country London prices have gone virtually nowhere since Brexit and why you can no longer swap a 1 bed studio in Nelson Mandela House in Peckham for a 4 bed Victorian Villa in Brighton or a country pile. If MSW ever called one thing right it was the peak of the London property price differential with the rest of the country.

  • 47 The Investor May 21, 2023, 1:02 pm

    I don’t disagree people are more frustrated, high earners included. I say in the piece that people are fed up. 🙂

    I’m sure our half-strangling the Golden Goose in 2016-> is part of it, but down at this end of the high-ish income curve, I maintain that cost of living increases are a big factor. Again look at my house price example in my previous comment.

    As for politics, zero disagreement there. I don’t bring it up every time because many people (even on ‘my’ side) get fed up with reading about it all the time, so I’ve informally agreed to limit focused discussion of it in my articles to every quarter or so. But it’s clearly a factor and the other side are clearly still in denial.

    e.g. Inexplicably pro-Leave Merryn Somerset-Webb was on Twitter expressing befuddlement about the recent terrible productivity figures. I mentioned in my replies that the OBR had explicitly forecast a 4% impact on productivity (massive) and front-loaded. (https://obr.uk/box/the-effect-on-productivity-of-leaving-the-eu/)

    No response.

  • 48 Al Cam May 21, 2023, 2:02 pm

    @StellaR (#30):

    Re: The good news is that I don’t have any IHT issues as my estate will all go to charity, so I think it makes sense to run the SIPP down now, as long as I’m investing excess income in the ISA and GIA.

    Something has been bothering me about this paragraph. On reflection, I would suggest that you check out the best way to gift to a charity (whilst living, or on death or, of course, both) as I think in some circumstances it may actually be better (if leaving a bigger gift to the charity qualifies as better) if you left the money in your SIPP.
    I am presuming that you do not need to flatten your SIPP – you just do not like the idea of being a HR tax payer if you did so. I suspect there are other, and possibly better, ways you could achieve a happy balance than totally flattening the SIPP.
    This of course requires you to have a good idea of what you need to live comfortably on – which in my experience is easier said than understood; see #41 above. Note, I have also presumed this must be less than you could draw.
    Just a thought.

  • 49 Learner May 21, 2023, 4:38 pm

    Renters Reform Bill is welcome news, followed by a kick in the goolies with the study about retirement savings for renters.

    > … the pension pot needed by someone who has to pay a regular rent out of their retirement savings will require a pension pot well beyond the reach of most ordinary people.

    > Webb cites government research published earlier this year showing people likely to be renters in retirement are at much higher risk of under-saving compared with those who will own a home outright.

    So the demographic that will need an outsized savings pot (£600k) is the one that is least likely to achieve it. The median is £200k and they won’t make even that. A catastrophe in the making.

  • 50 John May 21, 2023, 6:27 pm

    60% tax band here. The options are 38p in the pound of take-home pay, or nearly £1.14 in the pound into pensions via salary sacrifice (employer passes on their full national insurance saving).

    I’d much rather have the take-home pay – the pension should already suffice in later life – but try as I might I just can’t justify (to myself) an effective 67% tax rate.

    So the tax wags the tail, much more so than in the 40% band, and the pension keeps growing, perhaps unencumbered by the Lifetime Allowance, for now at least.

  • 51 OllyT May 21, 2023, 9:15 pm

    I am a teacher and have been for 20 years. Have been a 40% tax payer for last 5 years but this year I have set up a salary sacrifice into a workplace pension to reduce my salary to 46K. I think 40% is far too high for a teacher, personally.

    Will be using my dividend and saving interest allowance to bump up just under 50K. Will also attempt to use my CGT allowance of 6K to top up.

    This government to seem to be squeezing every allowance going.

    This government

  • 52 Time like infinity May 21, 2023, 10:36 pm

    @Boltt (#6): fascinating reminder of how much lower the personal allowance was back in 1981 (£1,395), during another time when the country faced recession and both continued high inflation and wage stagnation. Even allowing for inflation since 1981, at £12,570 now it has increased in real terms. It would be interesting to know if the income tax base had shrunk over that time.

    @Tax Credits (#8): crazy that you face a 116% effective marginal rate, all circumstances considered, between £50k-£60k income. You’re not being cynical at all. People reasonably respond to incentives. Financial cliff edges (whether in tax bands, tapers or claw backs) are going to materially affect what people decide to do.

    @Andy (#27): A sobering list of tax increases and threshold freezes/real terms reductions.

    Regarding your last two paragraphs, as with the comments @ZXSpectrum48k (#28 and #44), the issue here is lack of growth, and this is a huge and global problem.

    We’ve created a rod for our backs with Brexit (which is both an unmitigated disaster and a tragedy IMHO), and things have clearly gone pretty badly in the UK since the GFC; but the underlying issues here are also longer term, more fundamental and likely harder still to address.

    Whilst the rapid catch-up growth of the LDCs (starting with the Asia Pacific region) since the end of the 1970s has flattered global growth figures; the growth rates on productivity per hour worked in the already wealth countries of Europe and North America have been on an inconsistently downward trend since the end of the 1950-73 ‘Golden Age’.

    At the same time, demographic headwinds have been building and have now spread globally, with almost every country looking at below replacement level fertility by 2100.

    There was also, perhaps, more impactful, wider ranging and useful technological and social infrastructural improvement for most people from 1920 to 1970 (e.g. electricity, modern plumbing and central heating in the home; antibiotics in hospitals; universal education and health care) than from 1971 to date (think PCs and smartphones). As one of the doyens of Silicon Valley has put it, “we were promised flying cars and we got 140 word Tweets”.

    And there is research out there that the number of meaningful patents filed per year per capita globally peaked in the last decades of the nineteenth century. It seems logical that the lowest hanging fruit of useful innovation will be picked first, and that we’re now having to reach up towards the higher branches, but with ever smaller percentages of GDP being spent on R&D in order to do so.

    Without increasing productivity and/or having more workers to support those not working, no amount of tax changes – be it increases, decreases, retargeting or recalibrating – are ultimately going to help. In the short to medium term a wealth tax of 1% p.a. on over £10 m per individual (22,000 persons covered) could help at the margins of public expenditure, but going to 5% p.a., where the amounts potentially raised (at least on paper) might get interesting, is likely going to see the wealthiest cohort within this group up sticks.

    Perhaps AI (so misnamed, actually Machine Learning) will create a new economic paradigm and ignite and sustain the engines of economic growth to the benefit of us all. Then again, I’m not holding my breath on that one. I slightly feel that we may have seen this movie before (with the 1990s Dot Com mania) and that we’re more likely to end up underwhelmed and disappointed rather than finding ourselves living in a post scarcity techno utopia like Star Trek.

  • 53 ZXSpectrum48k May 21, 2023, 11:07 pm

    As much as everyone wants to think they are overtaxed, the overall UK tax burden as a function of GDP is not particularly high. In 2021, the UK tax burden was 33.5% of GDP. That is 2.2% below the OECD advanced economy average, 3.3% below the G7 and 6.4% below the EU14. It’s the likes of the US (25%) and Australia (30%) that are substantially below.

    The issue is that the tax burden is projected to already rise to 37.7% by 2028, a post-war high. After that it will get very bad, very quick as the demographics really turn against the UK. To be fair, we will share that problem with most other Western economies.

    Of course, the other issue is that the ratios are not helped by GDP growth that is utterly anemic. Exacerbated by voting for the “B” word and also voting for the same set of shysters four times in a row …

  • 54 Time like infinity May 21, 2023, 11:50 pm

    @ZXSpectrum48k (#53): worrying statistics for the UK. Thank you for sharing. Demography is destiny, and the destination does not look good for the public finances.

    Whilst the demographics seem to be unraveling faster than expected here, perhaps as concerningly is what’s happening to the former engine house of global growth.

    The last TFR posted for the PRC was 1.08, putting it only just ahead of S. Korea at 0.85. The now plausible low fertility pathway (0.8 TFR) to 2100 sees China down to 488 m people then, from 1.42 bn today; with a greatly increased retired population’s pension and healthcare needs resting upon taxing a much smaller working cohort.

    When the One Child policy was adopted by the CCP in 1980 the projection then without it was for a Chinese population as high as 4.2 bn by 2080. The greatly changed demographic scenario is a stark turn around carrying with it profound implications. If countries get old before they get rich this is likely to affect every aspect of society from macroeconomics to geopolitics.

  • 55 Andy D4 May 22, 2023, 8:24 am

    @Tax Credits (post 35) I think it’s great that you can reduce your work and make the salary and taxes effectively efficient for your lifestyle.

    I disagree with your three point model though as I live in the south east, have a house, a family and save 25% of my income into a pension. I’m just in the HRT andy wife doesn’t work so to amend your model I would add a further point and include lifestyle. Most people would not be willing to live our lifestyle of no holidays since kids, don’t go out for many meals (as no budget), drive old crappy cars but we do this as housing, family and wealth accumulation are more important than having the biggest house and fanciest cars.

    It’s an unsustainable business model though and the wife is going back to work part time in the next year or so. That brings its own complexities of childcare, organisation etc.

    I agree with your general point that it’s not easy to have all three or four and that hard life decisions have to made!

  • 56 Wodger May 22, 2023, 9:02 am

    @ZXSpectrum48k — on the other hand, Australia has no equivalent tax shelter vehicle for savings and investments like our ISAs. Superannuation schemes are the only way to be tax-efficient.

  • 57 Rosario May 22, 2023, 10:08 am

    The numbers around demographic change are worrying. An increased tax burden falling on fewer and fewer working people does lead me to conclude that this can only go so far, there will inevitably be a shift to widen the tax base to other wealth or income.

    Perhaps shifting the allocations of public service funding will be a route to raise taxes outside working individuals? Households could see increased council tax, or services become increasingly pay per use (NHS) rather than sitting on the government overhead. We could see an increase to things like dividend taxation or Pension incomes via something akin to a reduced NI? It certainly occurs to me that there will need to be a route to raise taxes outside of further squeezing working individuals directly.

    This both emphasises my desire to become FI and leads me to believe that the likely increase in taxation has to be factored in somewhere. We might not know where it will show up but its really likely that costs for the retiree will increase over the next few decades.

  • 58 WN May 22, 2023, 10:52 am

    @Time like infinity “In the short to medium term a wealth tax of 1% p.a. on over £10 m per individual (22,000 persons covered) could help at the margins of public expenditure”.

    But you know that once it’s introduced, and the majority of the electorate initially escape the tax so accept the concept, then governments will over time reduce or freeze the thresholds, widen the net, and slowly drag more people in. Then one day even ISAs that are “too large” will be taxed.

  • 59 A14M May 22, 2023, 11:21 am

    I admit, I am starting to play silly games to keep myself outside the HICBC. I realised a couple of months ago that my marginal real working wage, once including childcare and all the tax/ni contributions/HICBC, was actually negative.

    As a result I have requested to drop my working hours to allow me to collect the kids from school. I don’t mind paying tax, but I would rather spend more time with my kids than to pay to work while someone else looks after them.

  • 60 ermine May 22, 2023, 12:29 pm

    @ Time like infinity #54

    > When the One Child policy was adopted by the CCP in 1980 the projection then without it was for a Chinese population as high as 4.2 bn by 2080. The greatly changed demographic scenario is a stark turn around carrying with it profound implications.

    Hmm, consider the counterfactual. I for one am deeply grateful to the CCP. When I was born there were 3bn people on Earth. There are now 8bn. Elon Musk’s idiot savant blatherings notwithstanding there are very few environmental problems that are made easier with higher population. Perhaps the extra human ingenuity could get billions in spaceships to colonize new worlds, but for Musk’s blessed Starlink making Kessler Syndrome much more likely.

    So while I may not wish to live under the yoke of our New Chinese Overlords, I tip my hat to their foresight in avoiding a lot of problems we could otherwise all be dealing with right now.

  • 61 weenie May 22, 2023, 1:45 pm

    “New Chinese Overlords, I tip my hat to their foresight in avoiding a lot of problems”

    Globally, couples have been having fewer and fewer children, mainly due to improvements in education, wealth and health (according to Hans Rosling’s ‘Factfulness’) – this video shows how women used to have on average 6 babies: https://www.gapminder.org/answers/how-did-babies-per-woman-change-in-different-regions/.

    China got rid of their one-child policy in 2016, yet women aren’t suddenly having lots of babies, because they are choosing to focus on their careers and personal goals, plus as with the UK, there is a high cost of bringing up children over there.

  • 62 Time like infinity May 22, 2023, 2:51 pm

    @ermine (#60): it’s a real privilege to have a reply from you as I’ve been enjoying SLIS (both the Somerset and Suffolk eras) for many years now. I haven’t worked out how to do a smile emoji in the Monevator comments yet but, if I knew how to, then I’d be giving one now.

    @ermine & @weenie (#61): I wouldn’t advocate pro-natalist policies and I could reasonably be called a hypocrite if I did so as my better half and I are childless by choice. All that I would say is that the current likelihood that in the future there will be fewer persons (and especially fewer working age persons) than was thought likely at the crest of the demographic transition population growth wave at the beginning of the 1970s may be a good thing, a bad thing, something in-between or something else entirely depending upon one’s perspectives and values. But it unquestionably a thing, and an important thing at that.

    My own perspective is that it is good in terms of protection of habitats and biodiversity, and also in terms of sustainable planetary carrying capacity.

    On the other hand, having far more retired people relative to workers in the future (as against what was expected and planned for only a generation or two ago) is going to have far reaching implications for taxation, debt and public expenditures (especially, I suspect, on social entitlements and health care). It may well also significantly impact upon longer term interest rates, inflation/deflation scenarios and the average rates of return on different asset classes.

    @ermine: John Hands has an interestingly unconventional (but expensive) new book out called “The Future of Humankind: Why we should be optimistic” which succinctly sets out a pretty powerful case that large scale space colonisation is technically unfeasible, and likely will always be uneconomical. So, the Kessler cascade may be the least of Elon’s obstacles.

  • 63 jim May 22, 2023, 3:02 pm

    @wodger – can’t they purchase BTL through self managed super over there?

  • 64 BBBobbins May 22, 2023, 3:53 pm

    I’ve been diverting maximum amounts to pension for a while such that LTA was becoming a genuine risk (though I always figured at least 40 going in equalled LTA charge + basic rate coming out so probably worth erring on the side of over pensioning if I could fill ISA).

    Where I screwed up on tax efficiency was not filling ISA allowances for a time when cash ISA rates were in the doldrums. Clocked too late the considerable GIA sums I might have following a TFLS (+inheritance which I’ve never planned on but again might mean a lump sum) and the desirability of using ISA withdrawals in preference to SIPP for IHT . Oh well with lower CGT allowances I’ll have to pay a bit more tax if my GIA performs. Can probably still blend in with SIPP and ISA to keep a relatively low personal effective tax rate , plus might be worth allocating riskier bits of the portfolio there to harvest any losses.

    I think I’m not unusual. I’d guess that the power of the ISA isn’t appreciated until people start planning their sources of income/drawdown in retirement which for most means late 40s earliest. And before that filling ISA in addition to healthy pension contributions is almost certainly a challenge for most.

  • 65 Laurene May 22, 2023, 4:04 pm

    We retired slightly early with insufficient funds ( on paper ). I will pay tax on my state pension, but have been tax free on a low civil service and teachers pension. My husband gets the state pension. We have modest passive Sipps to take advantage of the 20% add on and an ISA each, plus savings. The house is a doer upper which is failing to be done up at any sensible pace due to being tight wads. We manage, but food inflation and saving money for the grandkids has made any holiday beyond reach. Surprising how little we care!

  • 66 xxd09 May 22, 2023, 8:12 pm

    A retired teacher(wife) on 20% tax (Scottish version) on her Teachers pension
    With a retired husband on a State Pension only
    We both have SIPPs and ISAs
    So tax bands are a choice
    So far juggling tax free 25% from two SIPPs plus occasional use of two ISAs has meant that we have not had to pay more than the 20% (Scottish version) tax rate-so far!
    A mixture of my SIPP withdrawals and judicious use of both ISAs might keep us both in 20% tax bracket to the end(both now 77 years old)
    However we were lucky retiring when we did re stockmarket performance
    Old age and spending less have come at the right time?!

  • 67 xxd09 May 23, 2023, 10:01 am

    Rereading the comments here one of the “elephants “ in the room re expenses is obviously a decision whether or not to have children
    They are arguably the main expense a couple will face for all sorts of reasons
    Currently not really supported by current Government policy
    Of course Darwinian rules mean that having no children means extinction -applies to all species without exception !
    Would be interesting to get posters views
    One point currently arising that I have noticed as I age is how important having kids who actually care about you personally (finance/care etc) is becoming more important to me
    Relying on friends is difficult as by definition they are aging the same rate and becoming unavailable due to their own age related problems

  • 68 The Investor May 23, 2023, 9:40 pm

    On the subject of higher-rate taxpayers having had enough, from the FT today:

    The problem is that the primacy of UK capital markets is under existential threat after Britain’s withdrawal from the Single Market, as market share and (higher-rate tax paying) talent leak away to other financial centres.

    Brexit isn’t to blame for sluggish IPO volumes or the low level of retail holdings of shares. It has, however, made efforts to arrest the City’s decline that much harder — and more urgent.

    [Source — search result to FT: https://tinyurl.com/mr22cnnu%5D

    I wonder where @BBlimp is nowadays? Perhaps he’s decamped overseas to cut his tax bill.

  • 69 ermine May 25, 2023, 7:57 am

    It’s a dirty job but somebody’s gotta do it. In 1985, when I was working in London, I was paying 30% tax and 9% NI on 3/4 of my salary, which in today’s terms would be £27033, less than the median wage. I hear the primal scream, but whatever the Torygraph says, taxes really aren’t at their highest historical levels in the UK, not anywhere near. Oh and that was under Margaret Thatcher, FWIW, not a Labour government

  • 70 Boltt May 25, 2023, 12:56 pm

    Taking Ermine’s actual example of £27k earnings and a tax/Ni rate of ~30% (22.5% tax and 7% NI) and compare with the table in (Comment 42 using £25k income for simplicity) 16% tax and 6% NI giving a median-ish tax+NI comparison of 22% v 30% – a frankly massive 25% giveaway 1985 v 2023 that isn’t sustainable

    Challenge for another reader is to do the equivalent with the Benefits system

  • 71 ermine May 25, 2023, 2:47 pm

    It was actually worse than that. the NI 9% was on top of the 30% 😉

    Benefits are harder to qualify. There wasn’t the mental torture of the unemployed we have now with weekly interviews etc. I was only ever unemployed for six months at the start of my working life and there wasn’t the bullshit you get now, it was ISTR OK, here’s the ticket, collect weekly, come back in six months time (which I didn’t as I had found a job, this was in the teeth of Thatcher’s first recession in the early 1980s). Unemployment benefit was £30.45 for a single person and £49.25 for a couple. You scale 1985 values by 2.9 to get to now, so that is 88.30 for the single case. JSA for > 25 adults is 84.80 nowadays. About 5% less in real terms for a single claimant. I believe people claim JSA individually now, so couples would be making hay nowadays at £160 relative to the rebased £142.82, a 27% uplift.

    In those days you didn’t have the weirdness of the benefits system pushing people into part-time. There was hardly any part-timery going on at all and people raising children as single parents was much less prevalent than now. The increased flexibility of the system to cope with that seems to have come with much more micromanagement. I haven’t had much dealings with the benefits system but that which I did was much less horrible than it sounds like now.

  • 72 Boltt May 25, 2023, 3:13 pm


    3/4 taxable at 39% ~=30% average tax/ni on total earnings (never very good at showing my workings)

    Agree basic benefits aren’t generous for singles – I have 3 kids with one on benefits (UC + 2x DLA, rent fully paid and no deductions when the sons work). The other 2 families earn around £55-£60k in total each – i’m surprised which family struggles the most

    Admittedly sample size 1 (or 3)

  • 73 ermine May 25, 2023, 5:19 pm


    Yeah, fair enough, indeed I computed that as a 29% composite tax rate (as if flat rate on all of the earnings in the long form of this rant. I also computed the trajectory of the composite tax rate as a function of takehome (ie given any takehome under the prevailing tax regime, what would the the % of your total gross tat you gave up) and normalised it to 1985. In 1985 hansard tells me once you cleared the first HRT threshold of £16200 it was
    The first £3,000… … … … … 40 per cent.
    The next £5,200… … … … … 45 per cent.
    The next £7,900… … … … … 50 per cent.
    The next £7,900… … … … … 55 per cent.
    The remainder … … … … … 60 per cent.
    which was basically like running into a brick wall. Now wonder the Beatles were pissed off, it was, of course, a lot worse in 1966.

    In short, people don’t know they were born these days and the Torygraph can STFU. Sure, the tax take is numerically the highest, because: inflation. But the percentage take is darn low at any level of income compared to the regime under their darling Margaret Thatcher, I believe well into her second term in 1985!

  • 74 Time like infinity May 25, 2023, 10:42 pm

    @ermine – Thanks for the figures from Hansard.

    Looks like he 60% rate in 1985 was charged on taxable income above £40,200.

    According to the ONS website, the “RPI Long run series: 1947 to 2023” (which has a reference base of 100 in January 1974) was at a level of 373.9 in April 1985 and is at 1,470.7 for April 2023 – so about a four fold increase in prices since 1985.

    £40,200 p.a. taxable income in 1985 would, therefore, be about £160k now in real terms, a sum which would be taxed now at the additional rate of 45%, so obviously quite a bit less than in 1985.

    However, we also now tax income between £100,000 and £125,140 p.a. at an effective marginal income tax rate, allowing for the tapering off of the Personal Allowance, of 60%.

    So, in effect, the UK does actually tax some taxpayers at the same marginal rate now as it did back in 1985.

    It’s just that it taxes a little less now than back then when income tax payers hit £125,140 p.a., taper considered.

    Effectively as an economy we’ve created an incentive for employees to either earn less than £100,000 p.a or more than £125,140 p.a.; which is perhaps a tad bit odd (taking a Martian visitors’ perspective on matters).

  • 75 The Investor May 25, 2023, 10:42 pm

    @ermine — You write:

    In short, people don’t know they were born these days and the Torygraph can STFU.

    I take the point that tax rates were higher. But I maintain again my contention that these higher rates were taxing more genuinely — and for want of a MUCH better phrase — ‘excess over normal’ income. Please see my comment above about London mortgages / house purchases for a young high earner in 1990 versus 2023.

    Perhaps house prices are as usual at the bottom of the ‘primal scream’, as usual in this country? 🙂

  • 76 Boltt May 26, 2023, 7:47 am

    Not sure which blog to post this one on:

    Ermine’s chart 2 (link below) shows an uncanny similarity between average tax rates for high-earning modern graduates (ie live student loans) to historical higher earners.

    The major difference is non-graduates (no student loans ever, or repaid) enjoying much lower taxation, especially if we focus on where the majority of earners actually are (ie under £45k)

    Below median earners appear to be very lightly taxed v historical norms – half historical levels-ish

    But this isn’t really a surprise and we FIRE types know the UK is a tax haven for retirees (high free pay/TFA, low tax, no NI, ISA etc) – drawing the chart for pensioners would probably highlight the urgent need to merge NI and TAX


  • 77 ermine May 26, 2023, 8:01 am

    I think what is easily missed now is that the tax base was much broader – after all I was paying what is almost now the HRT tax rate (30% BR + 9%NI) on 3/4 of a salary that was below today’s median wage. There was a clear attempt by the Coalition to take average earners out of the tax system by lifting the personal allowance. I had reservations at the time because people should have skin in the game. There’s now a clear unvoiced attempt to roll that back, using the combination of high inflation and fiscal drag. Rescaling the point at with my 1985 self started paying that 39% rate, ignoring that NI cut in earlier, would mean a personal allowance of £7000 in today’s money. That’s 55% of today’s value.

    The housing market is troubled, for sure, though I suspect it is on the turn in (outer) London, even a provincial mustelid could afford to buy a house there, which surprised me, although it would consume a bit more of my networth than would be wise. Reading Guardianistas I got the impression once you leave the city you could never buy back in – maybe from Islington that’s true but not the more swampy outskirts of the Great Wen. Part of the problem now is that the historically low interest rates have lifted prices so high it is harder to clear the bar of getting enough deposit, which is a specific bastard for first-time buyers unless they have access to BOMAD.

    It was never easy, even in 8% interest rate days. I had a 20% deposit, but half of that was borrowed on a 0% MBNA cheque, you could get away with that in those days since they didn’t ask you about CC debt on the mortgage application. MBNA got their money back, on time. In your example that punter is paying a shade under half their income on servicing the mortgage. I recall paying over half my income on servicing a mortgage, and that was in the sticks. Your example was from 1994, which was after a humdinger of a housing market crash, which is exceptional. Paying half your disposable income on housing is not unheard of.

    ZXSpectrum48k #53 also makes the macro observation that the UK tax burden is not high relative to similar countries. The rightwing press persistently and continuously pollutes the well that tax is unreasonably high in the UK, but it’s just not, either compared with out peers or indeed with our own recent history.

    Of course nobody wants to pay tax and it’s perfectly reasonable to take every opportunity to minimise the amount paid. The opportunities and exceptions offered in the UK tax system are also generous compared to other European countries – our ISAs are unusual and the pension reliefs are also generous, offset somewhat in that the UK State Pension is quite low compared to peers.

  • 78 ermine May 26, 2023, 2:21 pm

    @Time like infinity #74

    I used the Bank of England inflation calculator which gives the 2.9 scale factor. Though I don’t recall feeling exceptionally boracic lint over and above what any young tyke would feel, RPI would put me a shade over the median wage. Would also support TI@#75’s comment that the higher tax rates were aimed at relatively higher earners that what HRT aims at now, though the effect is rather tempered by the fact BRT + NI was almost what HRT is now

    and my #77 was in reply to TI@#75 since for some reason I didn’t see #76.

    @Boltt #76 Modern student loan payers taking home > 60k (gross >100k) have some grounds for complaint, though at least they clearly got some decent value from their investment in terms of earning power 😉

  • 79 Time like infinity May 26, 2023, 5:34 pm

    @Ermine (#77, final para): absolutely right of you to highlight the generous tax breaks offered by HMG (albeit they come with plenty of strings), e.g. non-exhaustively:

    1. CGT at 20% (-v- upto 45% for IT)
    2. No NI on pension income
    3. Non trivial ISA limits
    4. Decentish pension Annual Allowance
    5. Entrepreneurs’ Relief
    6. VCT upto 200k p.a.
    7. SEIS upto 100k/200k p.a.
    8. EIS upto £1 m p.a

    The 50% relief on SEIS contributions + loss relief at highest marginal rate is particularly underated. Very speculative, early stage micro-businesses of course, and most go to zero. But an additional rate taxpayer could effectively make a £10k investment for £2,750 additional capital at risk compared with a no investment scenario (i.e. £5k relief on contribution and loss relief of upto £2,250).

    If the generosity of these tax breaks were more widely known about then perhaps there would be less of a (mis)perception that the UK is a high tax jurisdiction which is not open to rewarding risk-taking and investment.

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