FT - Tories to raid tax relief pensions

MK62

There are several ways to frame this argument though, depending on your point of view........you could say, for instance, that every £ paid into a pension costs a BR tax payer 80p, but costs a HR taxpayer just 60p.....

Of course it's a little more nuanced than that as every HR taxpayer is also a BR taxpayer too......

The costs of pension tax relief are high though, as is pension NI relief.....combined, they'll be almost  £50B next year, and at present a disproportionately large chunk of that is taken by HR taxpayers. Any reform, with reduction of the total as a goal, will inevitably create some losers, and it's no surprise that those people will not be keen on the idea, but if the total needs reducing, it has to be reduced somewhere/somehow.....

EdSwippet

Amoux said:

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. 

It's (at most) 75% tax deferral. The deferral part is a feature, not a bug. It facilitates income smoothing.

I look forward to hearing your argument for why somebody on a variable income, say £0 in year one and £100k in year two, should be forced to pay a much higher total tax bill that someone on a steady income of £50k in years one and two. Because as of now, the only way to balance these two out in the UK tax system is to use a pension.

Paul_Herring

EdSwippet said:

It's (at most) 75% tax deferral.

Hush with your inconvenient facts.

How else are we to make wild claims such as the NI/IT reliefs are going up by 20% "to £50bn next year" if we're going to have to take into account taxes paid on pensions in payment as well?

hugheskevi

> 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,

Personally I take into account the level of my net remuneration when considering taking on a higher graded role, ie, being more productive (assuming the position comes with greater responsibility, stress, etc). That wasn't the case earlier in my career, but once I reached an income that is more than sufficient for what I wanted then  consideration of effort/reward became very important in decision making.

That means my decision is a combination of what the employer offers and the tax regime. About a decade ago I calculated that I could choose to work for 13 years at the same level, or about 12 years at the next level up to end up neutral in net terms. I decided I was much happier to carry on doing what I was doing rather than progress (become more productive) for so little extra. The tax system contributed to that decision, due to marginal deduction rates of around 50%.

MK62

Paul_Herring said:8

EdSwippet said:

It's (at most) 75% tax deferral.

How else are we to make wild claims such as the NI/IT reliefs are going up by 20% "to £50bn next year" if we're going to have to take into account taxes paid on pensions in payment as well?

I suppose it depends what you count.
This paper suggests that the figure for 2017/18 could have been as high as £53.7B even then....
http://researchbriefings.files.parliament.uk/documents/CBP-7505/CBP-7505.pdf
Though there are various caveats which need to be read too.......

Fair enough, if you take off tax on pensions in payment the figure falls to 
£34.8B.......though this tax would be payable whatever the future relief rate on contributions might be set to.......
 
Plus, those figures are before the effect of auto-enrollment contribition increases is factored in.......so the claim does not appear to be as wild as you are suggesting........

bowlhead99

Amoux said:

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. 

Hmm. I was living in Guernsey in 2010 when Jenson Button (2009 F1 champion) was over there. All the girls at the office hoped to bump into him down the gym.

20% income tax, with a cap on the total. And no CGT on your investments. In the UK that year the income tax rate went up to 50% uncapped for anything over £150k. 50% uncapped on your worldwide income when you are on a multimillion contract is not attractive, so if circumstances allow, you will jump ship. 

Lewis Hamilton was in the news last year putting his $50m New York apartment up for sale. He'll pay his property taxes wherever he has his homes, but he moved tax residence to Monaco from Switzerland about 7 years ago having found the latter 'a bit boring'. 

If he and Button were still living in their home towns of Stevenage and Frome, they would pay an amount of tax that's they'd find simply unacceptable when better deals exist elsewhere. So, zero income tax to the Exchequer from them other than on UK sourced income. Whereas if the Chancellor said be a good boy, live here and we'll cap your tax, and won't screw your family out of too much IHT so you don't need to redomicile - maybe some of those characters would stick around.

If you're taking your millions or billions to relocate to Switzerland, I've heard of fund managers and HNW investors negotiating with individual cantons to agree what tax they can get away with paying or not paying to live in that region versus a rival region of the country.

Here in the UK, if you're a business you might be able to get a grant for setting up an office in an area that is trying to incentivise employment and development, but there is no such thing as a wealthy person's taxes being earmarked for his local town or county (other than Scotland vs the rest). Instead it's just, this is the going rate for living in the UK, yes it's really high if you earn a lot, now be a good patriot and pay it - and if you choose to embrace any tax incentives such as making pension contributions up to your (tapered) annual allowance each year, we'll moan about how much tax we're 'losing' to scum like you gaming the system.

EdSwippet

MK62 said:

Fair enough, if you take off tax on pensions in payment the figure falls to  £34.8B.......though this tax would be payable whatever the future relief rate on contributions might be set to.......

The money collected now in tax on pension withdrawals is a result of contributions made years or decades ago. Curtailing the pension tax relief (deferral) rate will reduce the amount going in to pensions, and this will feed through to smaller future pension withdrawals, reducing tax receipts on pensions in payment.

You can then argue that the government has instead brought forward this tax collection, money that it would have collected later on. Okay, but this is not the free lunch you make it out to be. Tax collected now cannot (realistically) be collected again in future. And it is also less than that collected in future, because by collecting it early the government forgoes investment gains over time.

MK62

Yes, income tax is being paid now on historic contributions already tax relieved over the years.........and reducing tax/NI relief now would only affect future contributions, so there is no real direct link between the two......

As you say, if less money is paid into pensions as a result, less pension income tax will be collectable in the future, while more tax will be collectable today.....might sound attractive to a government looking to raise cash now.....however, it's not necessarily a given that pension contributions would fall overall. It might well depend on what exactly the govt did......I doubt they would remove sal sac and HR pension tax relief in one fell swoop while offering nothing at all in the way of a sweetener.....

Nobody is portraying it as a "free lunch".....there would be losers - there always is when govt decides it needs to increase net revenue......and whenever tax increases, either directly or otherwise, it takes money out of the economy, which means less corporation tax, VAT and excise duty........and so on.

That said, spending pledges have been made, there isn't enough money to cover them, and the govt has already pledged not to increase income tax, NI or VAT rates.........something has to give, so if the pledges are not to be reneged on, it'll have to be more borrowing and/or some more creative ways of raising significant revenue through the taxation system.

lisyloo

There isn’t a track record of sudden changes are there.
isnt the track record more of a leak and then do something less bad so everyone breathes a sigh of relief?

MK62

Personally I think it unlikely they will do anything on tax relief in this budget now.....if they do anything at all I think it far more likely it'd be in the main budget in the Autumn.....