If you earn between £100,000 and £125,000, your effective tax rate is 60% because you lose your personal allowance. On top of that, once you hit £100,000, you lose access to free childcare.
It gets worse when you add in the Section 24 mortgage rules. Historically, if you had £20,000 of rental income, £10,000 of running costs, and £10,000 of mortgage interest, you made nothing and therefore paid no tax. Now, a higher-rate taxpayer pays 40% tax on £10,000 (rent less running costs) (£4,000), and only gets a 20% credit for the mortgage interest (£1,000). That leaves you with a £2,000 tax bill on zero real profit.
And here's the real kick in the bollocks. If you earn £91,000 in your job in addition to the above. Under the old rules you had £91,000 of income and no rental profit, so you kept the childcare.
Now, you have £91,000 of employment income plus £10,000 of rental profit (because mortgage interest is no longer fully deductible). That pushes you to £101,000, which means you immediately lose all your childcare benefits.
The system is completely inconsistent. Two individuals earning £60,000 each – a total of £120,000 in the same household – will still get full child benefit, because each person is under the £60,000 threshold. But a single-earner household on £100,000 gets nothing, even though their total household income is lower and also loses the childcare.
This is unfair, punishes single earners, small landlords, and families, and creates absurd situations where households with higher incomes benefit more than those with less.
The system is broken, unfair, unfit for purpose, and has been left in a shambles by multiple governments. Rachel Reeves is just the last in a long line. No understanding of the real world, real people or what they have to face day to day.
