Tax on wealth suggested

kinger101

ZingPowZing said:

coyrls said:

I was making the point that a wealth tax on capital shouldn't logically be applied to a pension that is designed to provide income that will be subject to income tax.  As you know, you do not pay capital gains tax on your primary residence but that is a tax on capital, as it's name suggests.  I am not against a wealth tax but applying it to pensions is not logical.  I suspect they had to include pensions to make the numbers big enough.  When calculating net worth for example, pensions are usually excluded.

Logically, pensions should be taxed more punitively than PAYE. 

It's not logical at all.  For a start, PAYE is not a tax.  It is a method of collecting tax.  That is also used to collect tax from pensions.
Secondly, income taxes are not punitive.  Her Majesty's Government is not trying to punish us by collecting income taxes.  
But if you mean pensions should attract more tax than earnings from employment, then nobody is going to pay money into a pension so that it can attract a higher rate of tax than if they just took it as salary.

NottinghamKnight

kinger101 said:

Mickey666 said:

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?

There isn't actually an upper limit on NI (any more), but the rate drops from 12 % to 2% at about the same point where income tax increases from 20 % for 40 %.  Effectively meaning people are taxed mostly at 0 %, 32 % and then 42 %.  It would be perverse IMO to jump from 32 % to 52 % without first introducing additional bands for people earning over £30K.  

We have a structural deficit because everyone always thinks someone richer than them should pay more, despite us having the lowest taxes in NW Europe.

Though not in Scotland. with regard to the first point.
In relation to the second point we are not that different to much of Europe, though often due to people successfully avoiding paying in much of southern europe rather than just levying an actual lower tax rate. 

Thrugelmir

thegentleway said:

Another_Saver said:

thegentleway said:

Another_Saver said:

That 10.29% includes:
Dividend yield 3.97%, compared with current 1.6%
And 6.09% capital growth, which you can break down as:
CPI 2.88% (doesn't make a difference if only looking at real returns)
0.96% rerating from a PE of 10.13 to 24.88 over 94 years (no reason to expect that to continue, boomer/Millennial demographics)
1.11% population growth, expected to slow to 0 in future

Leaving real earnings growth per capita of 1.02%.

Thinking about the next 30 years, if you expect current valuations to maintain, the dividend yield to continue around the past 30 year average of 2%, population growth of say 0.5% and real earnings per capita growth of say 1%, I don't see how anyone expects the US market to return close to those historic averages of 7.2% real/10.3% nominal in future.

Cool - time to sell up and go all in on bitcoin/gold instead

I'm 1/3 FTSE 100 and 1/3 FTSE 250 🤷‍♂️

How come so much UK bias?

Better value on offer. Ratings haven't been so low since the mid 70's.  Need to be selective though. The assumption that UK listed companies only trade in the UK is beyond comprehension. Suggests that many investors are to be put it politely, dumb and lacking basic knowledge. 

Thrugelmir

uknick said:

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.

I'd wager that the Treasury is formulating plans. Only fair that those that benefit contribute their fair share. Hence why some companies have returned furlough monies. As don't wish to be hit with one off tax raids. 

[Deleted User]

kinger101 said:

ZingPowZing said:

coyrls said:

I was making the point that a wealth tax on capital shouldn't logically be applied to a pension that is designed to provide income that will be subject to income tax.  As you know, you do not pay capital gains tax on your primary residence but that is a tax on capital, as it's name suggests.  I am not against a wealth tax but applying it to pensions is not logical.  I suspect they had to include pensions to make the numbers big enough.  When calculating net worth for example, pensions are usually excluded.

Logically, pensions should be taxed more punitively than PAYE. 

It's not logical at all.  For a start, PAYE is not a tax.  It is a method of collecting tax.  That is also used to collect tax from pensions.
Secondly, income taxes are not punitive.  Her Majesty's Government is not trying to punish us by collecting income taxes.  
But if you mean pensions should attract more tax than earnings from employment, then nobody is going to pay money into a pension so that it can attract a higher rate of tax than if they just took it as salary.

Pensions should attract more tax than earnings from employment, to compensate for the decades long advantage of attracting less tax than earnings from employment.
Academic though; if Govt so decide, pensions will attract more tax than earnings, with no argument from this poster.

thegentleway

Thrugelmir said:

thegentleway said:

Another_Saver said:

thegentleway said:

Another_Saver said:

That 10.29% includes:
Dividend yield 3.97%, compared with current 1.6%
And 6.09% capital growth, which you can break down as:
CPI 2.88% (doesn't make a difference if only looking at real returns)
0.96% rerating from a PE of 10.13 to 24.88 over 94 years (no reason to expect that to continue, boomer/Millennial demographics)
1.11% population growth, expected to slow to 0 in future

Leaving real earnings growth per capita of 1.02%.

Thinking about the next 30 years, if you expect current valuations to maintain, the dividend yield to continue around the past 30 year average of 2%, population growth of say 0.5% and real earnings per capita growth of say 1%, I don't see how anyone expects the US market to return close to those historic averages of 7.2% real/10.3% nominal in future.

Cool - time to sell up and go all in on bitcoin/gold instead

I'm 1/3 FTSE 100 and 1/3 FTSE 250 🤷‍♂️

How come so much UK bias?

Better value on offer. Ratings haven't been so low since the mid 70's.  Need to be selective though. The assumption that UK listed companies only trade in the UK is beyond comprehension. Suggests that many investors are to be put it politely, dumb and lacking basic knowledge. 

Thank you, what you mean by need to be selective? Im guessing that implies not simply buying FTSE350?
Are you politely calling me dumb coz I wrote UK instead of London Stock Exchange?

Grumpy_chap

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.

My point was not about the possibility of the 20-something couple having future wealth of £1m, but the comparison between them, their parents, and grandparents and varying wealth depending on stage of life.

Another_Saver

thegentleway said:

Another_Saver said:

thegentleway said:

Another_Saver said:

That 10.29% includes:
Dividend yield 3.97%, compared with current 1.6%
And 6.09% capital growth, which you can break down as:
CPI 2.88% (doesn't make a difference if only looking at real returns)
0.96% rerating from a PE of 10.13 to 24.88 over 94 years (no reason to expect that to continue, boomer/Millennial demographics)
1.11% population growth, expected to slow to 0 in future

Leaving real earnings growth per capita of 1.02%.

Thinking about the next 30 years, if you expect current valuations to maintain, the dividend yield to continue around the past 30 year average of 2%, population growth of say 0.5% and real earnings per capita growth of say 1%, I don't see how anyone expects the US market to return close to those historic averages of 7.2% real/10.3% nominal in future.

Cool - time to sell up and go all in on bitcoin/gold instead

I'm 1/3 FTSE 100 and 1/3 FTSE 250 🤷‍♂️

How come so much UK bias?

You did ask so here you go.

1. I don't see 100% global as the default norm, but 100% domestic. I disagree with the idea, which is a trend (see ONS ownership of UK quoted shares historical stats and there's a chapter on it in Gervais Williams Slow Finance), that you "need" a global portfolio. 

2. The UK is a perfectly good developed capital market with a higher dividend payout, minimal currency/political/geopolitical risk, easier to understand co's, reputation for strong governance and regulations, (hopefully) therefore less unreliable reporting.

3. We haven't tended to get involved in bubbles as much (GFC says hi) and have done fine regardless. I don't buy the "FTSE 100 is full of dinosaurs/not growth oriented/dead/dying/done/old/slow" myth. The weighings aren't that extreme, the UK's sector weightings have been evolving for centuries. I think we're more diverse than the US with a combined 38.5% between IT & comms, plus 4.76% in amazon (going off S&P 500 data). I don't believe the tech sector will do well just because those co's are categorised as tech (though I enjoy reading @AnotherJoe posts about Tesla and SMT). Many of the benefits of those tech co's are being used by non-tech co's and the whole point of tech is that its users benefit or save so you can indirectly access to economic growth of tech by owning everything else (except in the case of tsla and big oil).

4. Performance - since Brexit the UK, both the 100 and 250 (and by extension the all share) have done crap vs the US, world, and world ex US  (depending on your start point, 2007 and 2013 are also arguable start dates of this underperformance but I contend the trends since those dates are weaker and not lasting, whereas since the referendum there is a clear and consistent record of UK underperformance). I contend this is mainly down to changes in valuation, though no doubt a fair chunk is both lost earnings and capitalisation costs of Brexit prep. I also contend this makes the UK cheap.
Snce 1900, the UK and US have fared equally well in nominal local currency terms. The idea that the UK has been underperforming the wider global market for "decades" as some claim is easily shown to be wrong on trustnet. Now if you take a period of decades and include the last 5 years, of course that makes it look like the UK has been underperforming for decades.

I've gone over this in previous threads and provided worked examples, such as using historic PE data to show that the earnings growth + dividend yield of UK co's (100 or All share) was higher than for US co's (I use the us as a proxy for the global market as I lack global data) over the past 20 years (1/1/2000-1/1/2020)...

Ok fine I'll put the numbers in...

S&0 500 total return over that period 6.06%
FTSE all share 4.68%
S&p pe fell from 29.04-24.88, -0.77% pa
FTSE all share pe fell from 28.64-17.6, -2.41 % pa

S&p 500 return excluding change in valuation 6.88%
Ftas return excluding change in valuation 7.26%
Again this is in local nominal currency terms.
Below is a table of Barclays UK equity index and https://dqydj.com/sp-500-return-calculator/ data for every decade from the 50s to the 2010s, also in local nominal currency terms.

            UK         US

2010s 8.5%.    13.3%
2000s 1.5%.    -0.7%
1990s 14.6%.  18.0% 
1980s 23.7%.  17.3%
1970s 10.5%.   5.8%
1960s 8.2%      7.8%
1950s 17.8%.   19.25%

5. The UK is perhaps the most globalised (major) economy/market in the world and already has ample global earnings exposure.

6. As such, and as the UK is a "middle man" market, I think some global exposure makes sense.

7. Since inception, the FTSE 250's outperformance of the FTSE 100 can be explained by the index growing 2.9% faster than its market cap, i have yet to study this in enough detail to make a firm conclusion but this is probably a combination of net acquisitions of co's in the 250 by external buyers (mostly foreign takeovers, private equity and main owners buybacks) and transition effects with the 100 (those rising into the 100 tend to rally from pre-announcement speculation through to the change becoming effective, as the stock is being removed from the index this has the same effect as an external acquisition, those falling into the index tend to be discounted). I don't see this as the kind of outperformance to which "return to mean" applies because it is structural to the 250, the 250 isn't running out of co's to acquire although the growing weight of investment companies is a concern. The 250 is also very diverse, you only really see how diverse if you actually look at the co's in there individually (I have). And because it starts at #101 and goes to #351 in the FTSE all share, it is less concentrated (top 10 weigh 1% each, #100 weighs 1/3%, #250 weighs 1/10%) than the 100 or global market. It is also less correlated with the 100 and global equity and the 100 and global equity are with each other (normally). However I am not confident as to pull all my money on it.

Hence I end up with something balanced that includes the lot and encapsulates my thinking simply: 1/3 FTSE 100, 1/3 FTSE 250, 1/3 global.

thegentleway

That’s a fair bit more detail than I was expecting thank you for explaining. Hope it works out well for you. 

Thrugelmir

thegentleway said:

Thrugelmir said:

thegentleway said:

Another_Saver said:

thegentleway said:

Another_Saver said:

That 10.29% includes:
Dividend yield 3.97%, compared with current 1.6%
And 6.09% capital growth, which you can break down as:
CPI 2.88% (doesn't make a difference if only looking at real returns)
0.96% rerating from a PE of 10.13 to 24.88 over 94 years (no reason to expect that to continue, boomer/Millennial demographics)
1.11% population growth, expected to slow to 0 in future

Leaving real earnings growth per capita of 1.02%.

Thinking about the next 30 years, if you expect current valuations to maintain, the dividend yield to continue around the past 30 year average of 2%, population growth of say 0.5% and real earnings per capita growth of say 1%, I don't see how anyone expects the US market to return close to those historic averages of 7.2% real/10.3% nominal in future.

Cool - time to sell up and go all in on bitcoin/gold instead

I'm 1/3 FTSE 100 and 1/3 FTSE 250 🤷‍♂️

How come so much UK bias?

Better value on offer. Ratings haven't been so low since the mid 70's.  Need to be selective though. The assumption that UK listed companies only trade in the UK is beyond comprehension. Suggests that many investors are to be put it politely, dumb and lacking basic knowledge. 

Thank you, what you mean by need to be selective? Im guessing that implies not simply buying FTSE350?
Are you politely calling me dumb coz I wrote UK instead of London Stock Exchange?

Selective in the sense that these are still potential challenging times in many industries and their related suppliers. You could say it's easy to chooose what not to invest in rather than what to buy. 
In answer to your question nope. Brass plates and where a stock has it's primary listing are unconnnected to where a company trades. Yet there's a mantra about not holding UK companies. Totally perverse. Why buy Pernod at a far higher forward rating than Diageo. Just because it has a foreign brass plate....... There's numerous similar examples.