Millions Snared by Tax Traps

June 12th, 2015

The UK tax code keeps getting more complicated, says the Financial Times, which is why millions of people get caught in tax traps that cost them hundreds or thousands of pounds. The FT’s analysis focused on three big anomalies: the loss of child benefit, the loss of personal income tax allowance and the marriage allowance. For households where one parent earns over £50,000, the loss of child benefit results in an effective rate much higher than the 40% official rate of income tax. The same applies to those earning over £100,000 who lose their personal income tax allowance and pay an effective rate of 60%.

The transfer of up to £1,060 of the personal allowance from a low-earning to a high-earning spouse is complicated and unfair. All three require taxpayers to engage in equally complicated strategies if they want to avoid penal tax rates.