General Election 2015 – Tax Implications?

antrobus

michaels wrote: »

Hmm - something that is clearly a stupid idea long term but which could bring in a lot of tax short term that could be used to reward ones own supporters in the unions....there is obviously no chance that any politician would be stupid enough to do it.....

It'll will only bring in a "lot of tax short term" if people are too stupid to adopt the obvious tax avoidance strategy of taking a salary sacrifice and switching to employer-only pension contributions. Any attempt to prevent such a strategy will result in every union screaming blue murder as they realise that every well paid public sector worker is going to be hit by a thumping big extra tax bill.

antrobus

michaels wrote: »

...I would guess that they woud simply decalre that all pension contributions whether by the individual or employer were taxable at the individuals marginal tax rate less 20%. Probably subject them to NI at the same time.....

Which would be very bad news if you were a civil servant with a salary of £75k+ and an employer contribution rate of 24.5%.

antrobus

chucknorris wrote: »

I don't think that they would do it (but I reckon you were joking anyway?), I think it would just affect lump sum pension payments.

No, I was being perfectly serious. If the government were to restrict tax relief on pension contributions to basic rate only, then you would simply have to change the way every payroll program calculated tax.

Of course "simply" is a relative concept. There would be a significant cost attached.

michaels

antrobus wrote: »

Which would be very bad news if you were a civil servant with a salary of £75k+ and an employer contribution rate of 24.5%.

Unless you exempt public sector employees by making up all the extra taxation with an increase in contributions which you could claim was 'fiscally neutral'.....

chucknorris

antrobus wrote: »

No, I was being perfectly serious. If the government were to restrict tax relief on pension contributions to basic rate only, then you would simply have to change the way every payroll program calculated tax.

Of course "simply" is a relative concept. There would be a significant cost attached.

The value of buying additional pension pension in the TPS is the pivotal reason that I may work beyond next year. I might retire anyway, staying on is a very borderline decision, but if they took away the 40% tax relief, I would leave as soon as I could without disrupting a semester.

antrobus

michaels wrote: »

Unless you exempt public sector employees by making up all the extra taxation with an increase in contributions which you could claim was 'fiscally neutral'.....

The contributions into the fund don't change, it's simply now the case that the employee is being assessed for tax on those contributions. (Increasing the contributions would just increase the tax they had to pay. And in any case, for public sector pensions, they are notional anyway.:))

Exempting public sector employees would, of course, simply p1ss off all the private sector employees. And since the latter outnumber the former by about 4 or 5:1, you would be committing electoral suicide.

theEnd

antrobus wrote: »

No, I was being perfectly serious. If the government were to restrict tax relief on pension contributions to basic rate only, then you would simply have to change the way every payroll program calculated tax.

Of course "simply" is a relative concept. There would be a significant cost attached.

But surely, it would be quite simple?

Spidernick's point is more interesting. How will they administer the tax on the employer (and salary sacrifice) side? It would have to be treated the same, or it becomes far too easy to side step the tax.

And then you'd have to treat final salary schemes the same too. So the companies already struggling to fund these schemes, would now also have to pay 20% tax on any employees in the higher tax band.

Another stupid idea, they haven't thought through.

michaels

antrobus wrote: »

The contributions into the fund don't change, it's simply now the case that the employee is being assessed for tax on those contributions. (Increasing the contributions would just increase the tax they had to pay. And in any case, for public sector pensions, they are notional anyway.:))

Exempting public sector employees would, of course, simply p1ss off all the private sector employees. And since the latter outnumber the former by about 4 or 5:1, you would be committing electoral suicide.

I am not suggested they are exempted, merely that their employer will decide to increase their contributions to make up for the loss incurred by the employee through the extra taxation. There is nothing stopping private sector employers from doing the same if they so choose, although f course for the priate sector doing so is not revenue neutral.....

antrobus

theEnd wrote: »

But surely, it would be quite simple? ...

Well, it's only arithmetic. So it should be simple. But experience tells me that even the simplest changes to software can result in absolute utter disaster if you don't test them properly. Which costs.

theEnd wrote: »

....Spidernick's point is more interesting. How will they administer the tax on the employer (and salary sacrifice) side? It would have to be treated the same, or it becomes far too easy to side step the tax.

And then you'd have to treat final salary schemes the same too. So the companies already struggling to fund these schemes, would now also have to pay 20% tax on any employees in the higher tax band.

Another stupid idea, they haven't thought through.

I believe that Spidernick is making the same point as I'm making. Avoiding the tax would be trivial, unless you tax employer contributions as well. Taxing employer contributions would mean pain for all higher tax public sector workers for one thing.

It would probably also kill of the remaining private sector defined benefit schemes. It would also probably result in higher rate taxpayers deserting private sector defined contribution schemes, and therefore relatively higher costs and lower returns for the remaining basic rate paying members.

michaels

All of which would bring in a lot more tax in the short term as people asked their employers to let them take pension as income now rather than deffering it as pension.