Osbourne's tax relief changes in the March budget

kidmugsy

Linton wrote: »

I heard it said once that a good manager should search his organisation for the really indispensible people....... and sack them. Its no good for the individual nor the company for someone to be indispensible. After retirement, I suspect you will find to your disappointment that you werent.

I once worked for an outfit that did something like that. It found it had to hire back the indispensable experts as consultants at much greater cost.

Few managers could ever gauge as well as the expert how dispensable the expert's skills are.

kidmugsy

Osborne could always sweeten the pill for the very highly paid e.g. by rationalising the income tax bands. For example, scrap the tapering of the Personal Allowance, and just impose 45% income tax from £100k p.a. By my calculation that would leave everyone on less than £188k p.a. better off. That might soften the blow of losing the 40%/45% relief on pension contributions.

I still think the big prob is how to deal with DB pensions.

chucknorris

If he caps pension tax relief at 30%, I really don't see the point in future investment in my SIPP, because I know that I will be a higher rate taxpayer in retirement. I have just withdrawn my (unofficial) notice of early retirement (last month), I was going to retire this September, but if the 40% pension tax relief disappears, I might change my mind again, and retire early as originally planned.

TheTracker

As a small business owner I have more routes than PAYE employees for choosing how to reward myself as owner personally with money. Pensions are the top vehicle now, but I'd just move to the next one if they weren't. George is already playing around with vehicle 2 (dividends) and suspected of moving onto vehicle 3 (entrepreneurs relief). How to kill small businesses 101.

Without going through the math, I can contribute to a pension and possibly pay 15% tax in future years, or I can let my business grow and ultimately pay less than 26% tax. I would probably continue to pay into a pension even if the net tax was 18-19% because I judge locking it away is worth at least the difference in risk. But as far as I can tell, a 30% flat rate would come with a 10% BIK tax for employer contributions making a net tax of 23.5%. As a result I'd simply stop paying into a pension full stop. Yes the exchequer would gain with a few more percent of corporation tax and then CGT from me but it's an illustration that people make behavioural changes and one can't just count directly inferred tax receipt increases. This isn't some exotic Jimmy Carr scheme, it's what millions of small business owners do.

gadgetmind

kidmugsy wrote: »

Is NI any more complicated than Social Security? Is the clawback any more complicated than Federal Income Tax, State Income Tax and Local Income Tax?

Yes to both. OK, the US tax system isn't exactly simple, but the UK one is over-complicated and heading towards bitter and twisted.

Snakey

Linton wrote: »

So HRTs will say: "The government is cutting my income. I know what I'll do to show them - I'll cut it even further!"

Yes, some may decide to retire slightly earlier than they otherwise would have done but I am sure there will be plenty of BRTs keen to take their place. Most HRTs wont yet be in a position to retire early.

FWIW, I'm doing the opposite. If the rules change in the direction I'm expecting they'll change, it would make more sense for me to spread my remaining working life over a longer period. So I would forget about retiring at 50, and go part-time at about 46 (whenever they bring in the new rules) and work until 57. So instead of paying 42% on the top 2/5ths of my salary, I'll pay 32% or less on the whole lot - and get the full benefit of the pension reliefs for basic rate payers.

Will a new person be recruited to cover the days I am no longer working? Quite probably not.

Are the few of us on this thread who are suggesting alternative options just a tiny minority of weirdoes, whingers and fusspots and/or lying about our intentions to make a point? Or are we pretty typical of the sort of people who are currently making massive pension contributions, and the way many of those people might be thinking? Let's hope the Government knows the answer to that, otherwise they might get their calculations very wrong.

gadgetmind

Linton wrote: »

So HRTs will say: "The government is cutting my income. I know what I'll do to show them - I'll cut it even further!"

I'm saying "why slog for that extra day a week when 80% of what I earn will go to HMRC?" So to answer your question "In many cases, yes."

I am sure there will be plenty of BRTs keen to take their place. Most HRTs wont yet be in a position to retire early.

I can't fully retire until I've got people (plural) in place to replace me. It's proving very difficult and several of my functions will be moved to teams in other countries.

The first wave of off-shoring was for fairly unskilled work, but a new wave is now in motion of highly skilled jobs moving away from the UK, and the pace accelerates with every rule change.

Snakey

p.s. Using simplistic numbers because I am too lazy to do the calculations, if I'm currently putting £40k into my pension and I stop doing that and instead take a £40k drop in salary, I am not cutting my current income, I'm cutting my future income. Whether I can afford to do this is largely down to how much I already have stashed away and what I expect my future earnings power to be.

Don't forget that we're not starting from a figure of zero, we're calculating this on the margins - any extra I put into my pension will almost certainly come out being taxed wholly at higher rates, or even more if I should breach the LTA, so any blended calculation based on "oh, but most of it will be at basic rate" is not relevant. Most people are also assuming that the lump sum will be reduced or removed such that any extra contributions will not come out 25%-tax-free either. So... 58 now or 60 later? Not worth the risk of pension rule changes, better to grab the cash and stick it in an ISA.

But then you get into the whole work/life balance thing and you take a step back and ask yourself what you're doing this for. Why take the 58 now (given that I'm already using my whole ISA allowance, although granted the dividend allowance may make a difference), when I could take zero and have an extra day off each week? If I cut down my hours, I'm only losing 58% of the whole of that extra salary - not some blended rate that makes my net loss higher. I'm working Friday for about half the pay that I get for working Monday. Why bother, given that we've established I don't need the money?

Apologies for the italics and also if it looks like I'm talking down to anybody - that's not my intention - I just think this whole "marginal" thing is something that a lot of people who are not themselves in this position don't think about, and this is why it's easy to come out with the wrong answer about what "most people" will do in response to a change.

gadgetmind

Snakey wrote: »

Are the few of us on this thread who are suggesting alternative options just a tiny minority of weirdoes, whingers and fusspots and/or lying about our intentions to make a point?

My request for a 4 day week has already been made and accepted. I've got numerous spreadsheet tabs modelling the various scenarios, and with the rules already announced, this is a no-brainer.

If things get even worse, then Ill react again. My wife quite fancies Canada.

chucknorris

Snakey wrote: »

p.s. Using simplistic numbers because I am too lazy to do the calculations, if I'm currently putting £40k into my pension and I stop doing that and instead take a £40k drop in salary, I am not cutting my current income, I'm cutting my future income. Whether I can afford to do this is largely down to how much I already have stashed away and what I expect my future earnings power to be.

Don't forget that we're not starting from a figure of zero, we're calculating this on the margins - any extra I put into my pension will almost certainly come out being taxed wholly at higher rates, or even more if I should breach the LTA, so any blended calculation based on "oh, but most of it will be at basic rate" is not relevant. Most people are also assuming that the lump sum will be reduced or removed such that any extra contributions will not come out 25%-tax-free either. So... 58 now or 60 later? Not worth the risk of pension rule changes, better to grab the cash and stick it in an ISA.

But then you get into the whole work/life balance thing and you take a step back and ask yourself what you're doing this for. Why take the 58 now (given that I'm already using my whole ISA allowance, although granted the dividend allowance may make a difference), when I could take zero and have an extra day off each week? If I cut down my hours, I'm only losing 58% of the whole of that extra salary - not some blended rate that makes my net loss higher. I'm working Friday for about half the pay that I get for working Monday. Why bother, given that we've established I don't need the money?

Apologies for the italics and also if it looks like I'm talking down to anybody - that's not my intention - I just think this whole "marginal" thing is something that a lot of people who are not themselves in this position don't think about, and this is why it's easy to come out with the wrong answer about what "most people" will do in response to a change.

That's where I am right now, I'm 58 this week, and I was going to retire this summer, but I've changed my mind. I am probably eventually going to decide on almost a whim, because it is such a close call either way. If I didn't like my job, I would have retired already. Because I do like my job, it isn't an easy decision to leave it, any change in pension tax relief might just be the straw that broke the camel's back. It would be ridiculous for me to say that I would retire totally because of a pension tax relief change, but it might just tip the scales.