Most people think the highest rate of tax in the UK is 50%. It isn't. It's 60% (*). When someone's income exceeds £100,000, they lose £1 of their tax-free personal allowance for every £2 they earn. The practical effect is that for every £1 they earn, they get to keep 40p (38p if you take NI into account as well). That rate persists until their income reaches £114,950, at which point it reverts to 40% again, until the £150,000 mark is reached.
It's a completely ludicrous situation, to the point that people often don't believe you when you tell them about it. Income tax is 0%, then 20%, then 40%, then 60%, then back down to 40% for a bit, then back up to 50%. Why on earth would you have that pattern? Essentially it's because the last Chancellor correctly judged that gradual withdrawal of the personal allowance was a good way of collecting some extra tax without people really understanding what was going on.
It would be really, really sensible to ditch this loss of the personal allowance. It would make things so much easier for the affected taxpayers (admittedly a very small minority) to understand, it would be a significant effort to make the tax system more straightforward and easy to understand, and it would just be nice if something so perverse could be ditched. Will it happen? I hope it might. Cutting the 50% tax rate would be politically explosive and easy for the opposition to attack. Reversing the loss of the personal allowance was deliberately introduced by the last government to be obscure and difficult to understand, and consequently is much harder for them to attack now, remaining similarly obscure and difficult to understand. On the other hand, its obscurity means that there may be no plaudits for ditching it, so perhaps the loss of revenue won't be judged worth the upheavel. We will see.
* Actually, marginal rates can be higher when someone is earning more but losing tax credits as a consequence, but that's a subject for a different blog...
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