Budget - raise more revenue?

[Deleted User]

With the budget coming up, an earlier forum exchange came to mind about tax avoidance.

Some folk on the forum really "go after" individuals and companies who use legal means to reduce the amount of tax they pay. Others have contrasting views about the amount of "taxpayers' money" that those who are not working can claim to fund their lives and the level of 26K being too high or too low.

Given that we are always being told that the country can't afford this and can't afford that, is it time to place a cash limit on income that people can earn from tax free cash and stocks and shares ISAs?

Is it right that there is a cap on the amount of taxpayer support a family can obtain, yet (given the length of time these accounts have been available, with the annual deposit allowances and reinvestment of interest/dividend income) an individual can have tens of thousands of pounds income that is tax free?

I am well aware of the need to encourage saving, and rewarding thrift, but (apologies for the link source!) according to this article -

http://www.telegraph.co.uk/finance/personalfinance/investing/isas/9958635/How-to-save-a-million-pound-Isa.html

there are large sums of money being earned under what is effectively a "tax avoidance scheme".

Someone who earns 25K a year working pays tax on everyting over £9440. Someone who earns more than that in interest/dividend from ISAs pays no tax at all.

Can "the country" afford that? If no, should there be a tax-free limit on the annual income from ISAs? (Even for a limited period until the country's finances are fixed?) For every person who legally avoids tax, someone else has to pay more. If that is worthy of condemnation for a company or a celebrity, why is it not similarly condemned for comparatively wealthy investors?

After all - "all in this together" etc:cool: - state pension age being looked at, public sector pay, contracts of employment for police/fire staff etc all fare game in terms of affordability - why should ISAs be untouchable?

I am not asking this out of jealousy - I have ISAs and am encouraging my kids to open them too - but if the country is as knackered as we are being told, can we really afford NOT to look at this? If we are looking at the "fairness" of how the taxes are spent, should we not be equally concerned at the "fairness" of how the taxes are raised?

Any other examples of untaxed economic activity that could be thrown into the "pot" and help the country recover? I know that any individual's profits from buying and selling gold sovereigns and some other UK gold coins are VAT and CGT free - but no doubt there are more?

WR

BillJones

Wild_Rover wrote: »

Any other examples of untaxed economic activity that could be thrown into the "pot" and help the country recover? I know that any individual's profits from buying and selling gold sovereigns and some other UK gold coins are VAT and CGT free - but no doubt there are more?

WR

Yes, the first £10k of earnings that are not taxed, get them in line with the higher earners, and tax it fully. Put VAT on children's clothes and food, remove the 10% and 20% tax rates, and get riid of duty-free.

It's high time low and mid-earners started paying their way, and I'm glad that you've brought it up.

Next, tax benefits, tax "benefit in kind" received through social housing, tax usage of state schools (benefiit in kind), and tax anyone who breaks the law. Charge money for staying in prison, and keep count of any benefiits received, and take it back out of future earnings until it is paid in full.

Tax babies who are born in an NHS hospital, for which they've paid nothing (obviously defer it until they are twelve, and can earn on a paper round), tax children who use the NHS after falling out of a tree, and tax parents whose offspring ever get involved wiith the police.

If we do that, then we can stop taxing higher earners so disproportionately...

cells

With interest rates at 2% a person needs to have more than £1.3m in a ISA to recieve annual interest income of £26K PA.

No one has £1.3m in a cash isa not even close.

There may well be something in the order of £100B in ISAs recieving perhaps £2B a year in interest. Tax them at 20% and you would receive £0.4B more in taxation.

A good amount but not world changing considering the uk taxes ~600B a year


a better more logical method would be to extend thre bank levy to all banks ni exceptions and to increase it to 0.5%. That would bring in closer to £30B a year and effectively cover all deposits including ISAs.

CLAPTON

It is inconceivable that the ISA tax benefits will be changed for existing ISAs

Far more likely that the annual allowance will be increased to encourage saving.

[Deleted User]

Well, BillJones, not exactly the kind of measured response I was hoping for.

Why not have everyone with the same tax-free allowance, then tax all income above that, irrespective of the source, at the same level or in "bands"?

The idea of the e.g non-working having a limit of taxpayer support of 26K, but taxpayer support to the non-working via ISAs worth far more seems odd.

Also, Cells, you'll note I was not only referring to cash ISAs - I also mentioned S&S ISAs where huge "pots" can be accumulated so annual returns in excess of average earnings are clearly possible by now.

That way there is "fairness" in the funding of all public services, rather than the present situation, where if you fund your lifestyle in one way (employment) you pay loads, but if you fund your lifestyle in another way (saving) you pay nothing. All in this together? Doesn't seem like it to me.

My post was a serious attempt to look at the fairness of taxation. The present system doesn't seem to be doing a particularly "fair" job, as the employed are directly subsidising the income of the wealthy via the tax treatment of "income".

Edit to add for Clapton - cheers - a fair point. Could/should future ISAs (maybe not so much cash ones, but say S&S) have a tax-free income limit? If the country is as broke as we are told, can we afford to carry on taxing income from jobs but not income from investment?

WR

CLAPTON

Wild_Rover wrote: »

Well, BillJones, not exactly the kind of measured response I was hoping for.

Why not have everyone with the same tax-free allowance, then tax all income above that, irrespective of the source, at the same level or in "bands"?

The idea of the e.g non-working having a limit of taxpayer support of 26K, but taxpayer support to the non-working via ISAs worth far more seems odd.

Also, Cells, you'll note I was not only referring to cash ISAs - I also mentioned S&S ISAs where huge "pots" can be accumulated so annual returns in excess of average earnings are clearly possible by now.

That way there is "fairness" in the funding of all public services, rather than the present situation, where if you fund your lifestyle in one way (employment) you pay loads, but if you fund your lifestyle in another way (saving) you pay nothing. All in this together? Doesn't seem like it to me.

My post was a serious attempt to look at the fairness of taxation. The present system doesn't seem to be doing a particularly "fair" job, as the employed are directly subsidising the income of the wealthy via the tax treatment of "income".

Edit to add for Clapton - cheers - a fair point. Could/should future ISAs (maybe not so much cash ones, but say S&S) have a tax-free income limit? If the country is as broke as we are told, can we afford to carry on taxing income from jobs but not income from investment?

WR

If you truely want to discuss tax 'fairness' (what that means ) then you need to include all taxes and all benefits in the equation.

e.g. I find it odd that you seem predisposed in favour of dead 'savings' but less so for some-one providing much needed investment money for UK businesses to expand and create more job and exports.

[Deleted User]

CLAPTON wrote: »

If you truely want to discuss tax 'fairness' (what that means ) then you need to include all taxes and all benefits in the equation.

e.g. I find it odd that you seem predisposed in favour of dead 'savings' but less so for some-one providing much needed investment money for UK businesses to expand and create more job and exports.

I agree - my feeling is that the present tax system - for want of a better word - is too geared towards the already better off.

I was listening to a debate on the radio earlier on - the way the economies of the "west" are structured, the flow of wealth is only going one way - to those who already have wealth. I have no problem whatsoever with people earning what they can in a market. What I find a little disturbing is not that fact that the wealthy CAN
earn their "crust", rather it is that the tax system is geared to entrench that wealth and actually add to it by making exempt from tax a number of activities that the less well off are less able to participate in. By all means invest as much as can be invested - and the more you invest, the more you'll get back - but to make ALL the returns exempt from tax? I think that goes too far.

When the idea for Income tax/CGT-free investments started off, do you think it was in the minds of the government that with the annual deposits and reinvestment of dividends folk could earn tens of thousands of pounds tax free? Even if that was the case then, can we still afford to be as generous to the already well off?

I think it's only fair that all income should be liable to taxation above a certain threshold.

Money that is saved in bank accounts/ISAs/stock market doesn't just sit "dead" - the institutions use the funds to generate returns. What I am referring to is the taxation of those returns, compared to the taxation of employment.

WR

CLAPTON

Wild_Rover wrote: »

I agree - my feeling is that the present tax system - for want of a better word - is too geared towards the already better off.

I was listening to a debate on the radio earlier on - the way the economies of the "west" are structured, the flow of wealth is only going one way - to those who already have wealth. I have no problem whatsoever with people earning what they can in a market. What I find a little disturbing is not that fact that the wealthy CAN
earn their "crust", rather it is that the tax system is geared to entrench that wealth and actually add to it by making exempt from tax a number of activities that the less well off are less able to participate in. By all means invest as much as can be invested - and the more you invest, the more you'll get back - but to make ALL the returns exempt from tax? I think that goes too far.

When the idea for Income tax/CGT-free investments started off, do you think it was in the minds of the government that with the annual deposits and reinvestment of dividends folk could earn tens of thousands of pounds tax free? Even if that was the case then, can we still afford to be as generous to the already well off?

I think it's only fair that all income should be liable to taxation above a certain threshold.

Money that is saved in bank accounts/ISAs/stock market doesn't just sit "dead" - the institutions use the funds to generate returns. What I am referring to is the taxation of those returns, compared to the taxation of employment.

WR

there is a great divide between people on economic issues

on one side are people concerned with how new businesses are started, grow , develop, employ people, create new products and create the difference that make us 1st or 3rd world counties


then on the other are people primarily concerned with how we divide up the wealth and products and service created by others.


I'm much more concerned about why we build so few houses, how to create high quality jobs and why our balance of trade is poor than I am about taxing ISA income.

wotsthat

If the government spent less money they wouldn't have to dream up ever more complicated ways to raise taxes that were 'fair'.

More thought should be given to how money is spent. It seems easy to give money away but somewhat of a kerfuffle to stop giving it away. Look at the bedroom 'tax' where the government were taken to court (and won) not because they actually imposed a tax but because they reduced spending. Or the middle class disgust at having child benefit cut.

chewmylegoff

If you abolish tax free wrappers then it increases the relative attractiveness of assets which cannot currently be held in those tax free wrappers.

So basically more capital gravitating towards BTL properties.

Hooray.

BillJones

Wild_Rover wrote: »

Well, BillJones, not exactly the kind of measured response I was hoping for.

No, you seem to want to call for higher taxation on people who already pay a vast amount of tax under the current system, and to ignore all the little loopholes, benefits, and tricks that lower earners use to drop their tax even further.

You are also assuming that the "unfiarness" at the moment is unfairness towards lower earners. The top 1% of earners earn 14% of all wages, and pay 30% of all income taxes. The bottom 30% of earners, I believe, pay next to nothing in income tax, and certainly less than they receive in benefits.

I understand that people might believe that it should be even more heavily skewed, but the idea that "the rich" aren't paying much tax is not right.