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Tax on wealth suggested

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  • thegentleway
    thegentleway Posts: 1,095 Forumite
    Part of the Furniture 500 Posts Photogenic Name Dropper
    coyrls said:
    thegentleway said:
    coyrls said:
    thegentleway said:
    A._Badger said:
    thegentleway said:
    zagfles said:
    thegentleway said:
    Black_Cat2 said:
    Being taxed on how much your pension is worth seems unfair to me (if I read this correctly?).  We are encouraged to pay what we can into one to support our retirement so how is it then fair to bring in a tax on it now?  DC and DB pensions meant you sacrifice your salary to be entitled to them and take the gamble that your hard earned money may go up as well as down 🤔

    I'm the first to admit I've probably missed the point lol, be kind 😘
    You can use that argument to make out all taxation is unfair. E.g. I work hard at my job so it’s unfair that the government takes a cut of my income.
    This kind of selfish greedy thinking doesn’t consider how to pay for defence, healthcare, infrastructure, etc... that we all benefit from. Without government expenditure you wouldn’t have a job or a pension in the first place. 
    No it isn't. The PPs point seems to be that we are encouraged to support ourselves in retirement by paying into a pension, if the government keep changing the goalposts about how they're taxed etc then that's similar to retrospective taxation, and it will cause people to lose faith in pension savings. Nothing at all like whinging about taxes on employment income. If the govt put taxes on employment income up then people can decide eg not to work overtime etc in the future because it's not worth it. Rather than retrospectively getting a bill for extra tax on the overtime they worked in the past.
    You’re welcome to your opinion but I think it’s the same logic:
    you can’t tax pension coz you discourage people saving for retirement is the same as you can’t tax higher earners more coz you discourage hard work and career progression. It’s the same very weak argument against taxation which you can apply to anything you don’t want taxed.
    In what way is it a weak argument? I have known more than a few tradesmen and small business owners who have consciously avoided growing or expanding their businesses because 'it's not worth it'. High taxation is a very real disincentive. It also encourages tax evasion so tends to be self-defeating. 
    I'm genuinely confused as to how 1% tax could be construed as high taxation? Compare UK tax to other countries and you'll see it's low.
    Somebody retired and living in London in a house worth £1M and a DC pension that they withdraw at 4% per year, a tax of 1% on the value of the pension is then equivalent to an additional 25% tax (with no personal allowance) on a year's income from their DC pension.
    No because the report suggests that where wealth tax due in respect of pension wealth the payment period would be over five years and, where the taxpayer had difficulty paying, they could apply for a further deferral. You're looking at maximum 5% additional income tax even in your extreme scenario, i.e. still low taxation.
    The report says "payable at 1% per year for 5 years"  and so it would either be 25% additional tax for 5 years or if you're saying you have 5 years to pay each year's liability, 5% extra for 25 years.  I don't see why my scenario is extreme; it is very close to my own position.

    A pension is there to provide income and will be taxed as income as it is paid; the capital is not available without an income tax liability.  I don't see why it should be treated both as capital and income.
    It’s a one off and you have 5 years to pay it.

    Why should someone with £750k house but £250k more in their pension than you pay less when you have similar wealth? Or why should someone with 1.25 mil house but £250k less in their pension pay more than you? 
    No one has ever become poor by giving
  • thegentleway
    thegentleway Posts: 1,095 Forumite
    Part of the Furniture 500 Posts Photogenic Name Dropper
    zagfles said:
    thegentleway said:
    TC56_803_9 said:
    thegentleway said:
    TC56_803_9 said:
    thegentleway said:
    Grumpy_chap said:
    • For most 20-something couples setting out on life's great big adventures, having "wealth" of £1m is very likely an impossible dream.
    You’re grossly underestimating the power of compound interest. A couple of 20 year olds only need to invest £50 a month each to have a million by retirement age! 

    24 year olds investing and never removing a penny for 43 years putting in £100 per month between them need an annulised return of 11.25% to achieve £1m.  That will require elements of risk well beyond anything guaranteed by the FSC.  And with that risk there are winners and there are losers.  
    That’s because you’ve stolen 3 years of compounding! I said a 20 year old and retirement age (currently 66)
    £100 a month for 46 years at 10% (historical yearly return) gets you a million. If you want to do it in 43 years you’ll need £134 a month. Whichever way you look at it’s hardly an impossible dream.
    The OP of this stated 20 somethings.  You might interpret that as 20 year olds. Being fair I could have gone for a mid 25 but elected to grant another year of contributions and interest.  Even then the concept is fanciful. 

    I was sold two endowments and various pension products and such like with estimates of 10% return (historical yearly return).  Not one of them got anywhere near that - historically  - which was exactly what I thought when I was sold them. The salesman said it would do XXX.  That it will actually do YYY and that YYY is less than XXX is a truism.
    Concept isn't fanciful at all. Compounding works, especially for long time frames. You can quibble about the rate of return and the number of years but it's very achievable for 20-25 year old couples to have £1 million by retirement if they start investing small sums monthly.
    It's not "quibbling" about the rate of return, if you get 3%pa real returns then investing £100 per month, even after 50 years you'd only have £137,000. Nowhere near a million. There's no reason to believe that greater returns than that are inevitable or even likely.
    3% - lol. You’re funny 😆 
    No one has ever become poor by giving
  • Another_Saver
    Another_Saver Posts: 530 Forumite
    500 Posts Name Dropper
    thegentleway said:
    zagfles said:
    thegentleway said:
    TC56_803_9 said:
    thegentleway said:
    TC56_803_9 said:
    thegentleway said:
    Grumpy_chap said:
    • For most 20-something couples setting out on life's great big adventures, having "wealth" of £1m is very likely an impossible dream.
    You’re grossly underestimating the power of compound interest. A couple of 20 year olds only need to invest £50 a month each to have a million by retirement age! 

    24 year olds investing and never removing a penny for 43 years putting in £100 per month between them need an annulised return of 11.25% to achieve £1m.  That will require elements of risk well beyond anything guaranteed by the FSC.  And with that risk there are winners and there are losers.  
    That’s because you’ve stolen 3 years of compounding! I said a 20 year old and retirement age (currently 66)
    £100 a month for 46 years at 10% (historical yearly return) gets you a million. If you want to do it in 43 years you’ll need £134 a month. Whichever way you look at it’s hardly an impossible dream.
    The OP of this stated 20 somethings.  You might interpret that as 20 year olds. Being fair I could have gone for a mid 25 but elected to grant another year of contributions and interest.  Even then the concept is fanciful. 

    I was sold two endowments and various pension products and such like with estimates of 10% return (historical yearly return).  Not one of them got anywhere near that - historically  - which was exactly what I thought when I was sold them. The salesman said it would do XXX.  That it will actually do YYY and that YYY is less than XXX is a truism.
    Concept isn't fanciful at all. Compounding works, especially for long time frames. You can quibble about the rate of return and the number of years but it's very achievable for 20-25 year old couples to have £1 million by retirement if they start investing small sums monthly.
    It's not "quibbling" about the rate of return, if you get 3%pa real returns then investing £100 per month, even after 50 years you'd only have £137,000. Nowhere near a million. There's no reason to believe that greater returns than that are inevitable or even likely.
    3% - lol. You’re funny 😆 
    3% is a reasonable, even optimistic real total net of fees and taxes return expectation for pensions over the foreseeable future given equity valuations and bond yields.
  • Another_Saver
    Another_Saver Posts: 530 Forumite
    500 Posts Name Dropper
    edited 13 December 2020 at 11:08PM
    Here's another example, in real terms, and I'll take 25 as a "mid 20s" age and 60 as the retirement age (I'm guessing that's what it will be by then), the real return they get is 4%. They need to be saving £1,140 (total between them) a month to hit a million. The average household's take home income is £2.5k a month, so good luck inspiring "average couples".

    If you think a more optimistic 5% real net of fees/taxes return is achievable, and they start at say 20 and save through to state pension age at say 70, then they'd only need £400 a month, still far more than your suggestion.
  • coyrls
    coyrls Posts: 2,521 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    thegentleway said:
    coyrls said:
    thegentleway said:
    coyrls said:
    thegentleway said:
    A._Badger said:
    thegentleway said:
    zagfles said:
    thegentleway said:
    Black_Cat2 said:
    Being taxed on how much your pension is worth seems unfair to me (if I read this correctly?).  We are encouraged to pay what we can into one to support our retirement so how is it then fair to bring in a tax on it now?  DC and DB pensions meant you sacrifice your salary to be entitled to them and take the gamble that your hard earned money may go up as well as down 🤔

    I'm the first to admit I've probably missed the point lol, be kind 😘
    You can use that argument to make out all taxation is unfair. E.g. I work hard at my job so it’s unfair that the government takes a cut of my income.
    This kind of selfish greedy thinking doesn’t consider how to pay for defence, healthcare, infrastructure, etc... that we all benefit from. Without government expenditure you wouldn’t have a job or a pension in the first place. 
    No it isn't. The PPs point seems to be that we are encouraged to support ourselves in retirement by paying into a pension, if the government keep changing the goalposts about how they're taxed etc then that's similar to retrospective taxation, and it will cause people to lose faith in pension savings. Nothing at all like whinging about taxes on employment income. If the govt put taxes on employment income up then people can decide eg not to work overtime etc in the future because it's not worth it. Rather than retrospectively getting a bill for extra tax on the overtime they worked in the past.
    You’re welcome to your opinion but I think it’s the same logic:
    you can’t tax pension coz you discourage people saving for retirement is the same as you can’t tax higher earners more coz you discourage hard work and career progression. It’s the same very weak argument against taxation which you can apply to anything you don’t want taxed.
    In what way is it a weak argument? I have known more than a few tradesmen and small business owners who have consciously avoided growing or expanding their businesses because 'it's not worth it'. High taxation is a very real disincentive. It also encourages tax evasion so tends to be self-defeating. 
    I'm genuinely confused as to how 1% tax could be construed as high taxation? Compare UK tax to other countries and you'll see it's low.
    Somebody retired and living in London in a house worth £1M and a DC pension that they withdraw at 4% per year, a tax of 1% on the value of the pension is then equivalent to an additional 25% tax (with no personal allowance) on a year's income from their DC pension.
    No because the report suggests that where wealth tax due in respect of pension wealth the payment period would be over five years and, where the taxpayer had difficulty paying, they could apply for a further deferral. You're looking at maximum 5% additional income tax even in your extreme scenario, i.e. still low taxation.
    The report says "payable at 1% per year for 5 years"  and so it would either be 25% additional tax for 5 years or if you're saying you have 5 years to pay each year's liability, 5% extra for 25 years.  I don't see why my scenario is extreme; it is very close to my own position.

    A pension is there to provide income and will be taxed as income as it is paid; the capital is not available without an income tax liability.  I don't see why it should be treated both as capital and income.
    It’s a one off and you have 5 years to pay it.

    Why should someone with £750k house but £250k more in their pension than you pay less when you have similar wealth? Or why should someone with 1.25 mil house but £250k less in their pension pay more than you? 
    I am quoting the report "1% per year for 5 years".  They are not proposing 1% with 5 years to pay.
    People are not paying income tax on the increase in the value of their house but they are paying income tax on withdrawals from their pension.
  • Mickey666
    Mickey666 Posts: 2,834 Forumite
    1,000 Posts Photogenic First Anniversary Name Dropper
    coyrls said:
    thegentleway said:
    coyrls said:
    thegentleway said:
    coyrls said:
    thegentleway said:
    A._Badger said:
    thegentleway said:
    zagfles said:
    thegentleway said:
    Black_Cat2 said:
    Being taxed on how much your pension is worth seems unfair to me (if I read this correctly?).  We are encouraged to pay what we can into one to support our retirement so how is it then fair to bring in a tax on it now?  DC and DB pensions meant you sacrifice your salary to be entitled to them and take the gamble that your hard earned money may go up as well as down 🤔

    I'm the first to admit I've probably missed the point lol, be kind 😘
    You can use that argument to make out all taxation is unfair. E.g. I work hard at my job so it’s unfair that the government takes a cut of my income.
    This kind of selfish greedy thinking doesn’t consider how to pay for defence, healthcare, infrastructure, etc... that we all benefit from. Without government expenditure you wouldn’t have a job or a pension in the first place. 
    No it isn't. The PPs point seems to be that we are encouraged to support ourselves in retirement by paying into a pension, if the government keep changing the goalposts about how they're taxed etc then that's similar to retrospective taxation, and it will cause people to lose faith in pension savings. Nothing at all like whinging about taxes on employment income. If the govt put taxes on employment income up then people can decide eg not to work overtime etc in the future because it's not worth it. Rather than retrospectively getting a bill for extra tax on the overtime they worked in the past.
    You’re welcome to your opinion but I think it’s the same logic:
    you can’t tax pension coz you discourage people saving for retirement is the same as you can’t tax higher earners more coz you discourage hard work and career progression. It’s the same very weak argument against taxation which you can apply to anything you don’t want taxed.
    In what way is it a weak argument? I have known more than a few tradesmen and small business owners who have consciously avoided growing or expanding their businesses because 'it's not worth it'. High taxation is a very real disincentive. It also encourages tax evasion so tends to be self-defeating. 
    I'm genuinely confused as to how 1% tax could be construed as high taxation? Compare UK tax to other countries and you'll see it's low.
    Somebody retired and living in London in a house worth £1M and a DC pension that they withdraw at 4% per year, a tax of 1% on the value of the pension is then equivalent to an additional 25% tax (with no personal allowance) on a year's income from their DC pension.
    No because the report suggests that where wealth tax due in respect of pension wealth the payment period would be over five years and, where the taxpayer had difficulty paying, they could apply for a further deferral. You're looking at maximum 5% additional income tax even in your extreme scenario, i.e. still low taxation.
    The report says "payable at 1% per year for 5 years"  and so it would either be 25% additional tax for 5 years or if you're saying you have 5 years to pay each year's liability, 5% extra for 25 years.  I don't see why my scenario is extreme; it is very close to my own position.

    A pension is there to provide income and will be taxed as income as it is paid; the capital is not available without an income tax liability.  I don't see why it should be treated both as capital and income.
    It’s a one off and you have 5 years to pay it.

    Why should someone with £750k house but £250k more in their pension than you pay less when you have similar wealth? Or why should someone with 1.25 mil house but £250k less in their pension pay more than you? 
    I am quoting the report "1% per year for 5 years".  They are not proposing 1% with 5 years to pay.
    People are not paying income tax on the increase in the value of their house but they are paying income tax on withdrawals from their pension.
    Which seems fair to me, because any increase in their house value cannot be accessed as income (because they need to live in it) whereas withdrawals from pension is income and releases the money with which to pay the tax.  Any increase in house value is usually collected via IHT on death (subject to allowances of course).  Increasing house values might give homeowners a warm feeling but it’s of little practical financial help if it can’t be accessed.  The ability to pay is an important factor in the fairness of any tax.  Tax on income is inherently payable, tax on wealth not necessarily so. A classic case would be retired homeowners with modest pensions living in a modest-sized house in London that could easily be worth £1m+
  • uknick
    uknick Posts: 1,791 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    They propose a "one off" tax of 5% on any assets over £500k per person.  Or, it is a tax on £1m per household but their examples conveniently assume every house has two adults living there who jointly own the house.  What if there are more than two adults living there all with joint ownership of the assets?

    Or, in my case it's just me.  My assets could well hit £1m if you take into account my house, savings and pension.  My only income is my pension of about £15k after tax and a very small amount of interest from my savings.  Under the proposals I have to find 5% of £500k, £25k to be paid over 5 years.  With my current income of about £15k after tax this means I have to pay an extra 30% in annual tax.  Hardly fair is a phrase that doesn't even start to describe my feelings on the matter.

    Here's a radical suggestion, which I don't think has been mentioned.  Why not start to claw back some of the COVID grants given to self employed and companies.  They could increase the relevant profit/income based taxes by a few % for a limited number of years.  I know they were given as grants with no payback mentioned, but I'm not aware anybody voted for the Government to impose a heinous tax on people who have spent their life being prudent to avoid being a burden on the taxpayer in their later years.
  • Mickey666
    Mickey666 Posts: 2,834 Forumite
    1,000 Posts Photogenic First Anniversary Name Dropper
    And here’s another suggestion.
    I’ve never understood why there is an upper limit on employee NI contributions.  Imagine if income tax was treated in the same way!  
    Why not remove the upper limit (or rather the upper reduction) on NI contributions?  This would have no effect on anyone earning less than around £50k pa.  Might be a big jump to abolish it in one go, but why not over a few years?
  • jsmith9
    jsmith9 Posts: 419 Forumite
    100 Posts Name Dropper
    This may have been posted before but there is a discussion on this week's 'This is Money' (also available as a podcast):

    This is Money: Be your own financial adviser - predictions, advice & tips

    Apologies if it has already been mentioned in the previous 20 pages.
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