FT - Tories to raid tax relief pensions

Amoux

The higher rate tax relief should be scrapped. It disproportionately helps richer people become even richer. And I don't think higher rate tax payers need the incentive anyway. It is actually people with the smallest disposable incomes who are not saving and need the greatest incentive. 
However I'm always sceptical whether it will happen, no matter what the FT says. This story comes up every tax year, and nothing gets changed. 

Paul_Herring

> The higher rate tax relief should be scrapped. It disproportionately helps richer people become even richer. 
People on £51k aren't rich. People on £210k can only get it on £10k. 

> And I don't think higher rate tax payers need the incentive anyway.

Yes I do, if that's where the government would like me to put my money. 

zagfles

Paul_Herring said:

> The higher rate tax relief should be scrapped. It disproportionately helps richer people become even richer. 
People on £51k aren't rich. People on £210k can only get it on £10k. 

> And I don't think higher rate tax payers need the incentive anyway.

Yes I do, if that's where the government would like me to put my money. 

I doubt the government care where people who are unlikely to be reliant on benefits in retirement put their money. As the pensions minister said when pension freedoms were introduced, they are quite relaxed about people buying a Lamborghini and living off the state pension.

People likely to be reliant on benefits in retirement would mainly be people who don't own their own house and/or don't have a full state pension (or equivalent). Probably not many higher rate taxpayers in that group. So if incentives are shifted away from higher rate taxpayers to lower earners, the government would be quids in.

Amoux

Paul_Herring said:

> The higher rate tax relief should be scrapped. It disproportionately helps richer people become even richer. 
People on £51k aren't rich. People on £210k can only get it on £10k. 

> And I don't think higher rate tax payers need the incentive anyway.

Yes I do, if that's where the government would like me to put my money. 

I never said people on 51K were rich. I said people who are higher tax payers are richer, which is true. 
And it disproportionately helps those already with more money make more. It should be a flat rate tax. 
If that means you won't use your pension because you won't get a disproportionate gain, then fine. The government benefits anyway. 

bowlhead99

Amoux said:

Paul_Herring said:

> The higher rate tax relief should be scrapped. It disproportionately helps richer people become even richer. 
People on £51k aren't rich. People on £210k can only get it on £10k. 

> And I don't think higher rate tax payers need the incentive anyway.

Yes I do, if that's where the government would like me to put my money. 

I never said people on 51K were rich. I said people who are higher tax payers are richer, which is true. 
And it disproportionately helps those already with more money make more. It should be a flat rate tax. 

Wat.
Tax relief at marginal rate only 'disproportionately'  helps those with higher incomes to cut their tax bills because those with higher incomes are paying a hell of a lot more income tax than everyone else. 

Sure, feel free to make income tax one flat rate, and those on higher incomes will then I expect be happy to have the tax relief for self-providing for retirement also be at a flat rate.

The problem with a system that makes people with high incomes pay a disproportionately high share of the income tax burden (progressive taxation) is that as you push the burden more over to the high income people, it is very difficult to roll it back in the opposite direction from time to time because the 80% of people who don't pay most of the tax will never vote to reduce the tax rate for the 20% that do, unless they also get some tax break for themselves of at least as much, otherwise they dismiss it as an outrageous idea. 

So, if you keep concentrating the tax burden more and more on those with the highest incomes and removing any reliefs that you could use to influence their behaviour (in the name of 'simplification'), you will end up with more and more of the tax burden on fewer and fewer people, and they will at some point choose to give up being productive or move themselves to a lower tax environment.
 

EdSwippet

Amoux said:

I never said people on 51K were rich. I said people who are higher tax payers are richer, which is true. 

"Rich" is a level of assets, not a level of income. Someone earning £51k but paying out £52k in income tax, NI, council tax, mortgage, food, clothing, school fees, transport, utilities and so on is not automatically rich.

michaels

bowlhead99 said:

Amoux said:

Paul_Herring said:

> The higher rate tax relief should be scrapped. It disproportionately helps richer people become even richer. 
People on £51k aren't rich. People on £210k can only get it on £10k. 

> And I don't think higher rate tax payers need the incentive anyway.

Yes I do, if that's where the government would like me to put my money. 

I never said people on 51K were rich. I said people who are higher tax payers are richer, which is true. 
And it disproportionately helps those already with more money make more. It should be a flat rate tax. 

Wat.
Tax relief at marginal rate only 'disproportionately'  helps those with higher incomes to cut their tax bills because those with higher incomes are paying a hell of a lot more income tax than everyone else. 

Sure, feel free to make income tax one flat rate, and those on higher incomes will then I expect be happy to have the tax relief for self-providing for retirement also be at a flat rate.

The problem with a system that makes people with high incomes pay a disproportionately high share of the income tax burden (progressive taxation) is that as you push the burden more over to the high income people, it is very difficult to roll it back in the opposite direction from time to time because the 80% of people who don't pay most of the tax will never vote to reduce the tax rate for the 20% that do, unless they also get some tax break for themselves of at least as much, otherwise they dismiss it as an outrageous idea. 

So, if you keep concentrating the tax burden more and more on those with the highest incomes and removing any reliefs that you could use to influence their behaviour (in the name of 'simplification'), you will end up with more and more of the tax burden on fewer and fewer people, and they will at some point choose to give up being productive or move themselves to a lower tax environment.
 

True, but what has happened probably to try to avoid taxing the majority is that we have ended up with a tax system with some eye-watering marginal rates at certain income levels and it seems to be marginal rather than average/total taxation that has the largest impact on people's behaviour and leads to often lower overall tax take.

Thus reform that has little impact on overall rates but gets rid of some of the marginal 'traps' would seem to make sense.

Amoux

EdSwippet said:

Amoux said:

I never said people on 51K were rich. I said people who are higher tax payers are richer, which is true. 

"Rich" is a level of assets, not a level of income. Someone earning £51k but paying out £52k in income tax, NI, council tax, mortgage, food, clothing, school fees, transport, utilities and so on is not automatically rich.

Yes, however the two things are directly correlated. Those with higher incomes have more assets, despite paying more in taxation.

And as for the comment above that says the tax relief is only disproportionate because they pay more tax, I do understand that - that's why it's called tax relief. But the governments interest should now be for people who have not got any assets or very little disposable income as it's these people who are most vulnerable and need the incentive to save most. Even with a flat rate, those on higher incomes will still be much wealthier. 

And frankly the idea that higher rate tax payers will "choose to give up being productive" or "move to a lower tax environment" is frankly farcical, and I'm a conservative voter. It's the immediate knee-jerk reaction that all tories give at the mere suggestion of balancing a bit of wealth. 

Paul_Herring

> I do understand that - that's why it's called tax relief.

Except it's not tax relief, it's tax deferral - 75% of it is taxable on withdrawal.

> And frankly the idea that higher rate tax payers will "choose to give up being productive" or "move to a lower tax environment" is frankly farcical,

No it's not. I'll be retiring as soon as I'm able.

kangoora

Paul_Herring said:

> I do understand that - that's why it's called tax relief.

Except it's not tax relief, it's tax deferral - 75% of it is taxable on withdrawal.

> And frankly the idea that higher rate tax payers will "choose to give up being productive" or "move to a lower tax environment" is frankly farcical,

No it's not. I'll be retiring as soon as I'm able.

Except that you'd be retiring as soon as you are able whatever the tax situation is like, it's the goal of, probably, 95%+ of people on this forum. The only difference would be that it would take you longer before you could retire due a reduction in tax relief, or you lowered your expectations in retirement and retired on a lesser amount than originally planned.