Rishi after Pensions Tax Relief

CSL0183

NedS said:
 The second step should be to introduce increased taxation using methods such as the proposed reduction in higher rate pension tax relief with a universal flat rate, or by increasing taxes such as income tax, inheritance tax, VAT, fuel duty etc.

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

NedS

CSL0183 said:

NedS said:
 The second step should be to introduce increased taxation using methods such as the proposed reduction in higher rate pension tax relief with a universal flat rate, or by increasing taxes such as income tax, inheritance tax, VAT, fuel duty etc.

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

I didn't mention anything about it being fair. I simply mentioned that it had been proposed as a possible method of the Treasury raising more tax to help pay for the pandemic.

garmeg

NedS said:

CSL0183 said:

NedS said:
 The second step should be to introduce increased taxation using methods such as the proposed reduction in higher rate pension tax relief with a universal flat rate, or by increasing taxes such as income tax, inheritance tax, VAT, fuel duty etc.

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

I didn't mention anything about it being fair. I simply mentioned that it had been proposed as a possible method of the Treasury raising more tax to help pay for the pandemic.

One would wonder why a HRT would put money in a pension for 25% tax relief but then pay 40% tax on any taken out in their HRT band. Keeping withdrawals under £50k pa would help and if they can support a withdrawal above that level they probably have LTA issues as well.

molerat

CSL0183 said:

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

Maybe not fair but has anyone said tax ever was fair.  Someone at some stage decided that a person earning over £x will pay a higher rate of tax on anything above that amount.  Why then should they be able to effectively buy something which is purely for their own benefit and have that tax bill reduced, they are still after all earning that same amount. At what point do we stop allowing things that benefit only the payer to be offset against that higher tax amount ?

RickyB2000

molerat said:

CSL0183 said:

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

Maybe not fair but has anyone said tax ever was fair.  Someone at some stage decided that a person earning over £x will pay a higher rate of tax on anything above that amount.  Why then should they be able to effectively buy something which is purely for their own benefit and have that tax bill reduced, they are still after all earning that same amount. At what point do we stop allowing things that benefit only the payer to be offset against that higher tax amount ?

Based on the wisdom that you need to have something like 2/3 working income to have a comfortable retirement, Mr HRT has a much bigger hill to climb. Clearly he needs that extra help otherwise he might not make it - esp with the very poor employer contributions typically available.

EdSwippet

NedS said:

CSL0183 said:

NedS said:
 The second step should be to introduce increased taxation using methods such as the proposed reduction in higher rate pension tax relief with a universal flat rate, or by increasing taxes such as income tax, inheritance tax, VAT, fuel duty etc.

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

I didn't mention anything about it being fair. I simply mentioned that it had been proposed as a possible method of the Treasury raising more tax to help pay for the pandemic.

Not in that post, but you did in an earlier comment ("It's not fair because ..."), back on page 2 of this thread.

CSL0183

Trying to figure out what it would mean if the government scrapped salary sacrifice and implemented a benefit in kind tax on employers contributions. 

To keep the maths simple, say you have a £60k salary with a 10% contribution, matched by employer at 10% through salary sacrifice. Effectively the employees salary is £66k with £12k going into the pension fund taking their income down to £54k. 

If a BIK was applied and a 25% relief added, would the maths below be correct?

£12k x 0.58 (42% relief) = £6,960. A flat 25% is then applied which takes the contribution upto £8,700 so a move to 25% flat rate would reduce the annual contribution by £3,300pa for the same take home pay. Not only is the employee getting hit with their own contribution but also that of their employers. 

So in order to keep the same £12k going into their fund, they would need to increase overall contributions to £16,550. (£16,550 x 0.58 = £9,600 x 1.25 = £12,000)

However, employer only pays a maximum of 10% of salary (£6k) so the employee would have to put in £10,550 (17.6%) to get back to where they were previously. An increase of £4,550 pa gross (£4,550 x 0.58 = £2,639pa net, so £220pm worse off in take home pay)
 

Add on top of that a likely increase to the tax bands post Covid so 41/42% then it will be even more severe. Not sure how that would kickstart the economy again, tax more, spend less. 

Is my understanding and the maths of BIK correct above?

EdSwippet

molerat said:

CSL0183 said:

Explain why a flat rate of tax relief would be deemed fair when there are multiple rates of income tax? Shouldn’t we just have a flat rate of income tax then?

Maybe not fair but has anyone said tax ever was fair.  ...

See also: Thought-terminating cliché - Wikipedia

Ganga

Do football players still pay tax at a lower rate for  " image rights " ?,i remember hearing about this on the radio many years ago where top players were asking for more of their salary paid in image rights to reduce their tax bills.

zagfles

CSL0183 said:

Trying to figure out what it would mean if the government scrapped salary sacrifice and implemented a benefit in kind tax on employers contributions. 

To keep the maths simple, say you have a £60k salary with a 10% contribution, matched by employer at 10% through salary sacrifice. Effectively the employees salary is £66k with £12k going into the pension fund taking their income down to £54k. 

If a BIK was applied and a 25% relief added, would the maths below be correct?

£12k x 0.58 (42% relief) = £6,960. A flat 25% is then applied which takes the contribution upto £8,700 so a move to 25% flat rate would reduce the annual contribution by £3,300pa for the same take home pay. Not only is the employee getting hit with their own contribution but also that of their employers. 

So in order to keep the same £12k going into their fund, they would need to increase overall contributions to £16,550. (£16,550 x 0.58 = £9,600 x 1.25 = £12,000)

However, employer only pays a maximum of 10% of salary (£6k) so the employee would have to put in £10,550 (17.6%) to get back to where they were previously. An increase of £4,550 pa gross (£4,550 x 0.58 = £2,639pa net, so £220pm worse off in take home pay)
 

Add on top of that a likely increase to the tax bands post Covid so 41/42% then it will be even more severe. Not sure how that would kickstart the economy again, tax more, spend less. 

Is my understanding and the maths of BIK correct above?

No. It depends how it's done, but BIKs are usually taxable but not NI'able on the employee. So in the example above there would be £54k taxable pay plus a £12k BIK which would be taxed at 40%. If flat relief at 25% is given then presumambly there'd be a tax credit of 25% of £12k so the tax on the BIK would be 15% of £12k ie £1800. So in this example the employee would be £150pm worse off.

If the employee was a basic rate taxpayer including the BIK then the tax credit of 25% would be more than the tax paid at 20% and so the employee on say £40k would be 5% of £8000 better off ie £400 a year.

But this is all speculation as they could do it loads of different ways, this is just if they treated it like a normal BIK with a flat 25% tax relief, and sal sac was still allowed.