EA - UK Personal Finance Tips and Info by Rasool

Link to original articleWelcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: UK Personal Finance Tips & Info, published by Rasool on January 19, 2023 on The Effective Altruism Forum.SummaryInspired by this post, a short intro to some of the important features and misconceptions of the UK personal finance landscape.For further information:MoneySavingExpert (MSE) is by far-and-away the best resource for all things finance. Subscribe to the weekly newsletter and consult the site guide for anything and everything money-related./r/UKPersonalFinance is excellent, especially the wiki and the flowchart.The Government/HMRC website is actually pretty accessible.This is only a brief overview, though I am happy to expand on any topic if there is interest. I am not your financial advisor and this is not financial advice.The topics covered are tax, banking, investing, and giving. Links to further reading are provided for each section.TaxIncome TaxThe UK has a marginal tax band system:Everything you earn below £12,570 is tax-freePounds 12,571 - 50,270 are taxed at 20%Pounds 50,271 - 150,000 are taxed at 40%Pounds 150,000+ are taxed at 45%.This is automatically calculated and deducted from your paycheck. Every month your employer should provide a payslip with your gross pay and deductions for tax, national insurance, pension, and student loan (if applicable). You should check this alongside online salary calculators like this, and speak to your HR/accounting department if there is anything you are not sure about.Example 1Your salary is £20,000, the first £12,570 is taxed at 0%. The portion between £12,571 and £20,000 is taxed at 20%.So you pay:0% on 12,57020% on 7,430 (which is 20000 - 12570)Which gives a total of £1,486Example 2Your salary is £60,000, the first £12,570 is taxed at 0%. The portion between £12,571 and £50,270 is taxed at 20%. The portion between £50,271 and £60,000 is taxed at 40%.So you pay:0% on 12,57020% on 37,700 (which is 50270 - 12570)40% on 9,730 (which is 60000 - 50270)Which gives a total of £11,432Your whole income is not taxed at your marginal tax band so it is impossible to take home less money as a result of a pay raise.These figures can be verified for example here ().National InsuranceNational Insurance is used to calculate your state pension. From the state retirement age, you get a weekly pension payment from the government.The size of this payment depends on the number of 'qualifying years' that you have paid national insurance (or earned it via credits - eg. by being on certain kinds of benefits, or being a parent or carer). Note that this does not take into account how much national insurance you have paid, only the number of years that you contributed.If you pay national insurance for 35 years you get the full state pension. If you only pay national insurance for 20 years, you will get 20/35ths of that amount.What you pay is also done on a marginal tax band system, though slightly confusingly the bands are per week/month rather than taking your total income over the whole year.Pretty much, what you pay 20% income tax on, you pay 12% national insurance on, and what you pay 40%+ income tax on, you pay 2% national insurance on.So a more accurate diagram is:And our examples from earlier are now:Example 1Your salary is £20,000, the first £12,570 is taxed at 0%. The portion between £12,571 and £20,000 is taxed at 20% with national insurance at 12%.So you pay:0% on 12,57032% on 7,430 (which is 20000 - 12570)Which gives a total of £2377.60Example 2Your salary is £60,000, the first £12,570 is taxed at 0%. The portion between £12,571 and £50,270 is taxed at 20% with national insurance at 12%. The portion between £50,271 and £60,000 is taxed at 40% with national insurance at 2%.So you pay:0% on 12,57032% on 37,700 (which is 50270 - 12570)42% on 9,730 (which is 60000 - 50270)Which gi...