Budget: Hammond mulling tax cuts for young paid for by slashing pension tax reliefs

Mr_Costcutter

economic wrote: »

my dad is about to cash in his pension for an annuity at 10%. worth doing now or wait till the budget?

Does anyone have a crystal ball?

Triumph13

AlanP wrote: »

Don't really follow the logic of this. Are you suggesting that the employee should pay tax on the employer's pension contribution over and above a flat rate of say BR tax @ 20%?

Why? Employer's contribution doesn't attract personal tax relief now so why make things even more complicated and bring it into scope?

The logic is that Salary Sacrifice allows you to drive a coach and horses through any attempt to tax employers' and employees' contributions separately and is incredibly hard to stop. If an employee negotiates with his employer a package that skews more towards pension contribution rather than salary, exactly how does HMRC decide whether it is okay or not?
Any attempt to restrict relief on EEs that doesn't also restrict it on ERs is basically doomed to fail. Any attempt to restrict relief on DC ERs that doesn't seek to do something similar to DB ERs would be seen as hugely iniquitous.

robin61

Filo25 wrote: »

Does the government actually have the votes to push through a budget with a cut to higher rate tax relief on pension contributions, I suspect not given they are likely to have a few rebels on the right of the party (and it wasn't in the manifesto).

Yes I agree. It makes any substantial change far less likely.

Lokolo

michaels wrote: »

In 1979 basic rate taxpayers paid 33% tax and 6.5% NI = 39.5%. The personal allowance was 1165
Today basic rate tax is 20%, NI is 12% and graduates pay 9% on income but only over 21k (rising to 25k) - so 32% on income up to 21k and 41% above this. Personal allowance is 11.5k.

Seems to me that even with all this student debt, tax payable by graduates is not very different no to when baby boomers were starting out in their jobs, however much the media want to scream about inter-generational unfairness.

Do you see it differently?

Well if you actually read my post I said "over the past 10 years or so", without going back to 1979.

Of course things will change over 40 years, I am talking about a small fraction of that since the 90s and 00s.

I also didn't point out that I thought any of this was unfair. I pointed out that the government is always tinkering and therefore you cannot rely on anything long term. And if anything, your post just goes to prove my point.

You should also ignore the personal allowance or at least have it inflation adjusted if you're going to compare.

zagfles

AlanP wrote: »

Don't really follow the logic of this. Are you suggesting that the employee should pay tax on the employer's pension contribution over and above a flat rate of say BR tax @ 20%?

Why? Employer's contribution doesn't attract personal tax relief now so why make things even more complicated and bring it into scope?

Of course employer contributions attract personal tax relief. They are a benefit in kind provided by the employer which is not taxed, unlike other BIKs, such as company cars etc. Not taxing a paid BIK is "tax relief".

With full marginal relief on pension contributions, everything is consistent and fair. People making personal contributions get full marginal relief (through RAS and claiming any higher rate relief), people whose employers contribute get full marginal relief by not getting taxed on the BIK.

At the moment an employee in a employer scheme typically has their contributiuon taken off GP to arrive at taxable pay - so get 20/40/45% relief as appropriate.

Paying into a SIPP / PP outside an employer scheme they get 20% relief added by HMRC/ Provider and reclaim the additional tax paid from HMRC.

So both people ending up putting the same net amount into their pension, although admitedly the employee ends up with a bigger pension pot as all the tax relief goes in.

If he were to set a flat rate at BR tax level, thus increasing treasury revenue by all the HR relief, they would still both end up in the same position.

The difficulty, and the "slow lane" bit would be handling the PAYE changes within payroll systems, no employer is going to want that sort of change implemented in a hurry.

Dealing with employee contributions is simple. Dealing with employer contributions, especially DB schemes, isn't.

If employer contributions weren't taxed as a BIK, then it would be simple to get full marginal relief. Just use salary sacrifice. Or jobs might start offering (eg) £50k pay plus £20k pension contribution instead of £70k pay.

zagfles

Silvertabby wrote: »

House prices started to soar in the 1980s because, up until then, mortgages were capped at 3.5 times the husband's salary and (at the most) 1 x the wife's salary. This was because the wife was expected to give up work once the kiddies came along.

Then came the 1980s, when a combination of the new sex equality laws and the fact that more and more mums returned to work meant that a wife's salary could be taken into account when determining the affordability of a mortgage. Couples borrowed more money because they could, leading to higher offers etc etc.

There's no going back from this.

There's loads the govt could do (or could have done) to damp down house prices.

For a start, the BoE inflation target should have included house prices, but they've always used a measure (first RPIX then CPI) which doesn't.

They could put CGT on all housing including owner occupied, with the ability to roll forwards to a new house so people only pay when they cash in the equity.

They could treat council tax a bit like income tax - but pooled per household - everyone has an "allowance" of property on which they pay no tax, then everything above that allowance they pay CT on. So people sharing a property would pay less council tax than the same property owned by a single person. Properties left empty would pay much more. So encouraging sharing of property and discouraging waste. So treating council tax as a proper progressive tax on property (before anyone says it - it's a TAX, not a payment for services).

They could get rid of the IHT allowance for property and go the other way with higher IHT on property left in wills.

Contrary to popular belief, we don't have a housing shortage. The housing supply has gone up faster than the population over the last few decades. We have less people per property, that's the problem. Policies to encourage sharing, and discourage looking on houses as investments rather than somewhere to live, should make housing more affordable.

Paul_Herring

zagfles wrote: »

There's loads the govt could do (or could have done) to damp down house prices.

They could stop subsidising house buying. (Equity loans and ISA's being the most recent.)

If people have more money to put towards a house, the only direction the price of said houses is going to be up.

zagfles

Paul_Herring wrote: »

They could stop subsidising house buying. (Equity loans and ISA's being the most recent.)

If people have more money to put towards a house, the only direction the price of said houses is going to be up.

Exactly - instead of policies which cost the govt money like all these daft help to buy schemes, which do no good as they just raise prices, they could solve the problem in a way that makes the govt money.

Filo25

zagfles wrote: »

Exactly - instead of policies which cost the govt money like all these daft help to buy schemes, which do no good as they just raise prices, they could solve the problem in a way that makes the govt money.

In a rising market though surely Equity Loans do make the government money.

zagfles

Filo25 wrote: »

In a rising market though surely Equity Loans do make the government money.

Except a rising market means even more of these loans required, meaning even more taxpayers' money tied up in housing, and making housing even less affordable for young people negating the whole point of the scheme.