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TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 17610
Experience:  International tax
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Because of a redundancy payment of £110,000 (before tax), taxed

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Because of a redundancy payment of £110,000 (before tax), taxed earnings of £24,000 up to the time I left at the end of July and the taking of a £22,000 a year work pension I am probably going to go above earnings of £150,000 this year. I am now doing casual work and want to know what tax I will pay on this extra money and also on my pension. I have been told it will be an effective rate of 60% because of the loss of personal allowance on earnings above £100,000. But I believe that marginal rate ends at £120,000 so I'm a bit confused.
Yes I can see how the numbers can be confusing.
The personal allowance is a valuable benefit because reduces your taxable income. However, if you earn in excess of £100,000, then the personal allowance is reduced.
When you lose your personal allowance on income above £100,000, combined with a tax rate of 40 per cent, your effective rate of tax on earnings between £100,001 and £149,950 is 60 per cent.
For every £2 you earn over £100,000 your personal tax allowance is reduced by £1.
A person’s marginal tax rate is the proportion paid in tax of each additional income unit received at their highest level of income.
For the current tax year to 5 April 2015, the 60% tax rate is payable on earnings between £100,000 and £120,000.
So if last year you earned £100,000 and this year this is expected to be £115,000, you will not only pay 40% tax on the increase of £15,000, but also because you will have lost your personal allowance, you will pay 40% tax on the “lost” personal allowance.
I can appreciate that sometimes tax issues are difficult concepts to grasp and the explanations can appear to be in a foreign language.
Customer: replied 3 years ago.

Hi, sorry, I understand the 60% tax trap....but my question was what tax rate will I be paying on my pension and casual work bearing in mind that I will probably earn £150,000 this year. Will it be 60% or 45%?

You will have 45%.
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