Being taxed twice on savings

RayWolfe

Cor! Andrew Gilligan is sure keeping up to date with the news. This situation has been in place forever ... so someone's paying him to write this stuff?

Lansdowne

RayWolfe wrote: »

... so someone's paying him to write this stuff?

Course they are, it is the Daily Mail after all.

Blah99

talana wrote: »

I'm not saying I agree with it, but you're not being taxed twice on the same money are you?.

1. You're taxed on your initial income
2. If you then use those earnings to generate secondary income (ie interest), then you're being taxed on that secondary income. :rolleyes:

Just as if you had secondary income from any other source, you'd also be liable to tax.

False comparison. Taxation on savings interest is arbitrary and, if anything, should fall under the CGT threshold rather than income tax. For example, your salary is taxed and you bring home £2000. You spend £1000 of that on bills, then put the other £1000 into the stock market by buying a single company. Your shares rise, you sell them and you make £500. That's earnings generating "secondary income" according to your point 2, but it falls under CGT and not income tax. Put that same £1000 into a bank account, get 5% interest on it and it's income taxed.

There is far too much taxation in this world. People should be rewarded for saving, and rewarded for investing.

Masomnia

Blah99 wrote: »

False comparison. Taxation on savings interest is arbitrary and, if anything, should fall under the CGT threshold rather than income tax. For example, your salary is taxed and you bring home £2000. You spend £1000 of that on bills, then put the other £1000 into the stock market by buying a single company. Your shares rise, you sell them and you make £500. That's earnings generating "secondary income" according to your point 2, but it falls under CGT and not income tax. Put that same £1000 into a bank account, get 5% interest on it and it's income taxed.

There is far too much taxation in this world. People should be rewarded for saving, and rewarded for investing.

It isn't quite the same. When you buy shares you purchase an asset which increases in value (hopefully!) and you then sell that asset for a profit, same as for second homes etc. You risk your capital when you make that purchase. When you make a deposit you don't risk anything, nothing is bought and sold, so there isn't a capital gain on an asset.

Blah99

Masomnia wrote: »

It isn't quite the same. When you buy shares you purchase an asset which increases in value (hopefully!) and you then sell that asset for a profit, same as for second homes etc. You risk your capital when you make that purchase. When you make a deposit you don't risk anything, nothing is bought and sold, so there isn't a capital gain on an asset.

Savings in a bank account is your capital too, though (traditional definition). It's your accumulated wealth stored in cash.

The application of CGT isn't based upon the risk class of an asset. If it was, dividends would fall under CGT too. You have to hold shares to receive dividends, so dividends are therefore as risky as shares, therefore if CGT or income tax is assigned on a risk basis both shares and dividends would fall into the same class. A simplistic view, but the point holds.

On a related note, the fact that you can get charged CGT on a gift is another abhorrent example of how the Government tries its best to extort every last penny from you...

Masomnia

Blah99 wrote: »

Savings in a bank account is your capital too, though (traditional definition). It's your accumulated wealth stored in cash.

The application of CGT isn't based upon the risk class of an asset. If it was, dividends would fall under CGT too. You have to hold shares to receive dividends, so dividends are therefore as risky as shares, therefore if CGT or income tax is assigned on a risk basis both shares and dividends would fall into the same class. A simplistic view, but the point holds.

On a related note, the fact that you can get charged CGT on a gift is another abhorrent example of how the Government tries its best to extort every last penny from you...

I take the point about risk, to bring that up was irrelevant. It is related to the point though, if you buy shares, you do just that, you buy an asset. This asset increases in value and sell it at a profit. You make a gain on it.

When you deposit an amount in the account, the bank pays you interest in return, it's a very different thing. Nothing is bought or sold. It isn't about making a profit, there's no capital gain.

opinions4u

Masomnia wrote: »

When you deposit an amount in the account, the bank pays you interest in return, it's a very different thing. Nothing is bought or sold. It isn't about making a profit, there's no capital gain.

Although if you add your interest to your capital, then your capital has quite clearly gained in value. Some might describe a gain in value of capital as a capital gain!!

I can see both sides of the argument, and I'm not sure that either point is particularly wrong.

Ultimately, the case for completely overhauling the whole tax and benefits system of this nation is overwhelming. But no politician will ever have the balls to do it.

Masomnia

opinions4u wrote: »

Although if you add your interest to your capital, then your capital has quite clearly gained in value. Some might describe a gain in value of capital as a capital gain!!

Ultimately, the case for completely overhauling the whole tax and benefits system of this nation is overwhelming. But no politician will ever have the balls to do it.

I do see that side of the argument too, but to me, the result after having interest paid isn't capital*1.05, but capital + capital*0.05, ie. capital + interest... But yeah I do see your point.

And yeah our tax system has just been carelessly added to over the centuries, and has just got more and more complicated. It is in desperate need of overhaul, couldn't agree more.

Jake'sGran

Blah99 wrote: »

There is far too much taxation in this world. People should be rewarded for saving, and rewarded for investing.

I use to think I was after making some excellent gains on various ISAs but they have all dropped now although a single co PEP with BG worked well i.e. in obtaining other free shares I wouldn't have bought. Just have to sit it out. In response to Tradetime (above)
yes, I did know about IHT and took the necessary steps.

Loco

tradetime wrote: »

.....and if you save up enough, you'll be taxed on some of it again when you die

sadly true....as Benjamin Franklin said "in this world nothing can be said to be certain, except death and taxes.