1.2 Tax - The Trap That Hits You Twice
How your income gets taken away before, during and after payday
Missed last week? Read 1.1 - The Inflation Trap here!
or see the full escape map here
"The difference between death and taxes is death doesn't get worse every time Congress meets."
Will Rogers
Where Did My Salary Go? The Shock of Taxes
When I got my first payslip, I thought I’d be taking home most of it. The number in my bank account told a different story. The culprit? Taxes.
Taxes Then vs Now: Welcome to Tax Envy
The first UK income tax was introduced by William Pitt in 1799.
It was a rate of 10% on all income over £60 (£5,800 in today’s money - or “inflation adjusted”)1
Congress brought in the first US tax in 1894. It was just 2% on all income over $4,000 ($135,000 in 2022 money)2
If you are starting to feel a tinge of jealousy over how low these tax rates were, and that almost nobody paid them, you’re not alone.
That’s “tax envy”.
How Today's Taxes Take a Big Bite of Your Paycheck
In the UK, Income tax is banded, different levels of income are taxed at different rates.
UK Income Tax Bands (2024-25)
Calculating Tax the Easy Way
When you have recovered from the realisation that after a certain amount, you are giving almost half your earnings away in income tax, here’s another quick way to work out percentages of an amount:
To work out 20% of an amount, multiply by 0.20
To work out 40% → × 0.40
To work out 45% → × 0.45
How Much of Your Salary Do You Really Keep?
For someone earning £60,000, the income tax calculation is
National Insurance adds another £3,200 to the bill.
Money that you worked hard to earn, but was taken away before you even got a chance to see it.
£60,000 might sound high, but after income tax and national insurance, you’re left with approximately £45,000. That’s a 25% haircut before you have even touched your payslip.
The Hidden Taxes Draining Your Wallet
And that’s not all. There are scores of other taxes that we pay, and we don’t even feel it leaving our wallets.
VAT (Value Added Tax) - Buying groceries, clothes, or paying your accountant? Add another 20% tax. It’s baked into most prices — so you rarely notice it, but always pay it.
Road Tax - Want to drive a car? Depending on its emissions, it could be over £300 a year.
Fuel Tax - Every tank taxed at an astounding 60%.
Council Tax - Want to live in your own home? depending on where you live - another £200+ per month
Capital Gains Tax - Bought some shares and made a profit? Depending on your income, hand over 18% or 24% of those gains.
Tax on Dividends - Got paid a dividend as a reward for investing? 8%, 33%, or 39% tax, depending on your income bracket.
Tax on interest - Just doing the right thing by saving? Tough - After your tax-free allowance, the interest is taxed at your highest income rate (20% or 40%). Ouch.
Inheritance tax - popped your clogs? 40% tax on your estate after your tax-free allowance
If we included all these in our tax calculation, we are effectively paying almost 40% on all our earnings.
For a £60,000 salary, that’s a hidden tax bill of £24,000.
You can’t earn, buy, invest, save — or even live — without paying tax. And this is not an exhaustive list of taxes.
The UK Tax code is over 20,000 pages long. That’s over 12 times longer than the complete works of Shakespeare.
We earn. We save. We spend. And with every step, a little more leaks away — lost to taxes we barely notice.
That is the trap.
You work hard. Earn more, save more. But the more you earn, the more you spend - the more tax you pay.
And what’s left is being eaten away by trap 1 - inflation.
Is it any wonder getting ahead feels so hard?
Smart Ways to Keep More of Your Money (Legally)
There are ways of reducing your tax bill.
Not loopholes or hacks.
Just simple, legal strategies that most people never use. In the USA and UK there are tax efficient accounts you can use to store and grow your money.
We will cover these in later posts, but for now in the UK these are:
ISAs: Grow your savings and investments tax-free
SIPPs: Invest for retirement and get tax relief up front
The Tax Tail and the Growth Dog
Don’t let the tax tail wag the investment dog
Taxes can be frustrating once you see how many there are.
But they also fund schools, hospitals, roads, emergency services — the foundations of a functioning society.
Taxes aren’t the enemy per se, but they do need to be understood — and managed.
And too much focus on tax can distract you from the bigger win:
Growing your wealth faster than inflation.
That’s where the real escape is.
Recap
Taxes take a huge bite before you even see your pay.
The more you earn and spend, the more tax you pay.
Hidden taxes (VAT, fuel, council tax, dividends) quietly drain your wealth.
ISAs and pensions are powerful legal tools to reduce your tax bill.
Don’t obsess over taxes — focus on growing wealth with assets that beat inflation.
Up Next: Time = Money? The Hidden Cost of the Work Trap
How Your Job Steals Your Most Valuable Asset
See the Map of where we are going: Click Here
Looking Ahead
Your Real Tax Rate Might Shock You
Most people know their salary. But few realise how much of it disappears in tax before it even reaches their account.
Use this free calculator: https://www.uktaxcalculators.co.uk
Enter your income and explore:
Income Tax
National Insurance
And (if you scroll down) — the hidden extras
It’s simple, eye-opening… and slightly sobering.
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Tools & Resources
Explore all tools here: Tools & Resources — calculators, mappers, and guides to help you escape the money trap.”
Have you ever calculated how much tax you actually pay?
😩 Yes, and it was painful.
🤷 No idea, I’m too scared to look
Drop your answer below — and any tips or rants about the tax trap. Even a single sentence helps — I’d love to hear what you think.
https://www.att.org.uk/history-income-tax-and-hmrc
https://www.reaganlibrary.gov/constitutional-amendments-amendment-16-income-taxes#:~:text=The%20short%2Dlived%20Revenue%20Act,was%20eventually%20repealed%20in%201872.
Disclaimer: This content is for informational and educational purposes only. It does not constitute personal financial advice. Everyone’s situation is different — if in doubt, speak to a qualified, regulated financial adviser.
Yes, Taxes are the biggest problem to savings. It is smart to use any legal means to reduce ones tax and increase ones savings, but then there is another issue. Most retirement accounts will put a large portion of that money into Government Bonds. Governments are chronic defaulters, especially in Europe. So not only should you put as much money into retirement accounts, but make sure the assets in the accounts do not hold Government Debt. War is on the horizon because the European Governments need a distraction from their Default.