A pension outside 'the system' for the paranoid?

Linton

atush wrote: »

Dividends have an automatic 10% tax deducted, that pensions used to be able to claim back from t he govt. .

Sorry, but there is no 10% tax paid to the Treasury. Its an accounting fiction. The following is the simplest explanation I have found, thanks Standard Life:

all UK dividends carry a tax credit equal to one-ninth of the dividend paid. This is purely a notional amount and Standard Life does not pay this tax to HMRC. Notional tax is a UK tax credit which is treated as meeting the basic rate tax liability, but which is not repayable under any circumstances.

Why it's 10% I dont know. It could just as easily have been 20% or 50% without any impact on tax actually paid.

noh

Linton wrote: »

Sorry, but there is no 10% tax paid to the Treasury. Its an accounting fiction. The following is the simplest explanation I have found, thanks Standard Life:

all UK dividends carry a tax credit equal to one-ninth of the dividend paid. This is purely a notional amount and Standard Life does not pay this tax to HMRC. Notional tax is a UK tax credit which is treated as meeting the basic rate tax liability, but which is not repayable under any circumstances.

Why it's 10% I dont know. It could just as easily have been 20% or 50% without any impact on tax actually paid.

It would have an impact on tax actually paid because outside of a tax wrapper the amount is grossed up ie if you receive a dividend of £90 it will have an attached notional tax credit of £10 and counts as £100 gross income.
If the rates were higher you would fall into the higher tax brackets sooner.

Linton

noh wrote: »

It would have an impact on tax actually paid because outside of a tax wrapper the amount is grossed up ie if you receive a dividend of £90 it will have an attached notional tax credit of £10 and counts as £100 gross income.
If the rates were higher you would fall into the higher tax brackets sooner.

Agreed that it would affect higher rate tax payers. I was really talking about this area in the context of tax rebates in tax protected accounts.

gadgetmind

Linton wrote: »

Sorry, but there is no 10% tax paid to the Treasury. Its an accounting fiction.

The credit is to allow for the tax already paid on company profits. This tax used to be reclaimable, but Brown stopped this with no warning in 1997 as he said pensions were in surplus and didn't need it.

The treasury disagreed and said (in documents had to be dragged out under the Freedom Of Information act long after the event
that the move would "cause a shortfall in existing assets of up to £75bn" and that "employers would have to contribute about an extra £10bn a year for the next 10 to 15 years to get pension scheme funding back on track".

Of course, then we had the 2000/2001 crash, and companies couldn't afford to do this.

Andy_L

gadgetmind wrote: »

And quite rightly.



£5bn a year, every year, and rising.



Yes, it was, and it made dividends (the main engine of growth in a long-term equity portfolio) 10% less effective with the difference being syphoned off to HMG's less than responsible grasp.

Only £3.5billion from pension though, the rest from other non-tax payers. Plus the associated reduction in corporation tax

http://www.pensionspolicyinstitute.org.uk/uploadeddocuments/PPI_Briefing_Note_22.pdf

Linton

Andy_L wrote: »

Only £3.5billion from pension though, the rest from other non-tax payers. Plus the associated reduction in corporation tax

http://www.pensionspolicyinstitute.org.uk/uploadeddocuments/PPI_Briefing_Note_22.pdf

Good info which I hadnt seen. It shows that actually the changes to the dividend rebate and the corporation tax were pretty tax neutral. GB took from pensions and handed it to companies, which presumably therefore had more money to pay in dividends had they so wished (and maybe they did).

This argument seems to have some similarities to the one on public sector pensions - people getting a good deal from the tax payer squeal loudly when it is reduced or removed.

xylophone

jonny2510 wrote: »

Anyone fancy offering an objective overview of what Gordon Brown actually did?

I'm forever hearing about Brown's "raid on pensions", though have no real idea of what it was, and who it affected.

As I understand it (no expert!):
Companies used to pay Advance Corporation Tax on dividends.
Before Gordon, if a shareholder was a non- taxpayer (or had shares in an ISA - called a PEP then), or shares held in a pension fund) the tax paid on his dividends could be reclaimed.

Gordon abolished Advance Corporation Tax but I seem to remember that for a year afterwards, a 10% tax refund could be reclaimed in a
PEP, then the concession ceased.
Now dividends are paid with a 10% tax credit but all this does is satisfy basic rate tax (it is simply a credit against any tax due) and it is non-reclaimable for non- tax payers, or on investments in ISAs, pension schemes etc. Higher rate tax payers have to satisfy their liability (32.5%) when they declare their income through self assessment.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4016453

Another take on the matter here: http://www.havingtheircake.com/content/3_Consequences/3_Cannon%20fodder/fact%20and%20opinion/A%20Short%20history%20of%20UK%20Pensions%20and%20Savings.php