Tax on wealth suggested

eskbanker

Sea_Shell said:

eskbanker said:

gozaimasu said:

I would like to know if this suggestion of 1% on everything over £1million now makes Premium Bond prizes of £1m taxable. They might not be taxed at source, but as soon as they make that person have £1million they will be due to pay tax on that so for the first year they'd be £10k down. If they have any other assets then that's another £10k down the following year. Essentially it would cost you £10k per year just to have a million+ pounds. The idea of being able to live off that £1m win for the rest of your life would be shattered.

No, the idea is that it's only wealth above the threshold that's taxable, not the initial £1m itself:

This would be paid by individuals whose total wealth after mortgages and other debts, and after splitting the value of shared assets such as a jointly-owned family home, exceeded the tax threshold, and only on the value of wealth above that threshold. To be clear, a wealth tax levied at 1% above £500,000 would require a couple to have net wealth of more than £1 million before any wealth tax would be payable.

But if you already have a significant level of wealth, a big win could push you well into taxable territory.

You could end up taxed on some, if not all, of that "tax free" win!!

Yes, agreed - I was just correcting the poster's impression that recipients of a £1m PB prize would automatically be hit with an annual £10k wealth tax bill on those winnings if the proposed measures were introduced ("Essentially it would cost you £10k per year just to have a million+ pounds").

zagfles

The_Green_Hornet said:

Albermarle said:

There's been enough pain this year without further tax rises . Just stick it all on the national debt and forget it. Saving £100bn won't exactly pay it off. Slowly things will recover.

The problem with this is we do not know when the next disaster will strike . When it does better to have the debt at more manageable levels before we have to start borrowing more tens of billions. 

Debt interest, as a percentage of GDP, is the lowest it has been for decades so I would say it is currently at a very manageable level.


https://commonslibrary.parliament.uk/research-briefings/sn05745/

But I don't think that accounts for inflation does it? With high inflation as in the 70's and 80's the real value of the national debt reduces significantly year on year, with current levels of inflation it hardly reduces at all. So we might be paying less interest, but the debt isn't going down much in real terms.

gozaimasu

LHW99 said:

gozaimasu said:

The top 10% of income tax payers (people on £50k+ p.a.) pay 60% of all income tax and the top 1% (those earning £150k+) pay 25% of all income tax. That leaves 15% paid by everyone else earning less than £50k and of course the 40% of all people who don't pay any income tax at all.

I think the calculation here is out - the "top 10%" will include the "top 1%" so its 40% of the income tax paid by everyone else earning less than £50k (and above the tax-free allowance). That presumably would be 50% of the country? (100% - (10% top earners) - (40% non-tax payers).

I think I've just written it down wrong - it's all in the video I linked.

gozaimasu

Sea_Shell said:

But if you already have a significant level of wealth, a big win could push you well into taxable territory.
You could end up taxed on some, if not all, of that "tax free" win!!

Yes, that's what I was thinking. If you have less than £1m in your property/pension etc, but then you win £1m on PBs, you're taxed on ALL of your assets because of the "tax free" win pushed you up above the £1m threshold.

Sea_Shell

gozaimasu said:

Sea_Shell said:

But if you already have a significant level of wealth, a big win could push you well into taxable territory.
You could end up taxed on some, if not all, of that "tax free" win!!

Yes, that's what I was thinking. If you have less than £1m in your property/pension etc, but then you win £1m on PBs, you're taxed on ALL of your assets because of the "tax free" win pushed you up above the £1m threshold.

Well, maybe taxed on your assets OVER £1m, not everything.

But if you already had assets of £999,999, then yes, your whole win could be taxed.

gozaimasu

Imagine you have £50k equity in your property then you win £1m in PBs. All of your £50k assets would be taxed. That's the example I was trying to use. Everything you have is taxed just because you won a PB prize, not because you were living in luxury your whole life as a wealthy person. For me to be (or feel) truly wealthy I'd have to have enough assets to live off the income so that I would never work ever again. Which is what the top PB win would allow.

Albermarle said:

As the chance of winning a Million Pounds is so small, I am not sure this is something likely to worry anybody.

I like to dream. The only way I will ever get anywhere near £1million of wealth is if I win it.

Sea_Shell

Oh, I see you were looking at it from a different angle.

One way is looking at the win being taxed, and another your original assets being taxed.   Same difference, if your post-win assets = £1,050,000.

Another_Saver

zagfles said:

The_Green_Hornet said:

Albermarle said:

There's been enough pain this year without further tax rises . Just stick it all on the national debt and forget it. Saving £100bn won't exactly pay it off. Slowly things will recover.

The problem with this is we do not know when the next disaster will strike . When it does better to have the debt at more manageable levels before we have to start borrowing more tens of billions. 

Debt interest, as a percentage of GDP, is the lowest it has been for decades so I would say it is currently at a very manageable level.


https://commonslibrary.parliament.uk/research-briefings/sn05745/

But I don't think that accounts for inflation does it? With high inflation as in the 70's and 80's the real value of the national debt reduces significantly year on year, with current levels of inflation it hardly reduces at all. So we might be paying less interest, but the debt isn't going down much in real terms.

It does. That's just the nominal total interest in that year's money/nominal GDP in that year's money.

zagfles

Another_Saver said:

zagfles said:

The_Green_Hornet said:

Albermarle said:

There's been enough pain this year without further tax rises . Just stick it all on the national debt and forget it. Saving £100bn won't exactly pay it off. Slowly things will recover.

The problem with this is we do not know when the next disaster will strike . When it does better to have the debt at more manageable levels before we have to start borrowing more tens of billions. 

Debt interest, as a percentage of GDP, is the lowest it has been for decades so I would say it is currently at a very manageable level.


https://commonslibrary.parliament.uk/research-briefings/sn05745/

But I don't think that accounts for inflation does it? With high inflation as in the 70's and 80's the real value of the national debt reduces significantly year on year, with current levels of inflation it hardly reduces at all. So we might be paying less interest, but the debt isn't going down much in real terms.

It does. That's just the nominal total interest in that year's money/nominal GDP in that year's money.

Yes, I understand that. But it doesn't account for the real total national debt reducing with inflation.

It's like having a £100,000 interest only mortgage at 10% when inflation is 10%. You're paying 10% interest but your debt is reducing by 10% in real terms at the same time. 

If you then buy a bigger house doubling your mortgage to £200,000, but the mortgage rate and inflation have both dropped to 5%, then you're paying the same amount of interest as before (10% of £100k = 5% of £200k), but the real value of your mortgage is only reducing by 5% pa.

So in the first case, your real debt is reducing much faster.

itwasntme001

zagfles said:

Another_Saver said:

zagfles said:

The_Green_Hornet said:

Albermarle said:

There's been enough pain this year without further tax rises . Just stick it all on the national debt and forget it. Saving £100bn won't exactly pay it off. Slowly things will recover.

The problem with this is we do not know when the next disaster will strike . When it does better to have the debt at more manageable levels before we have to start borrowing more tens of billions. 

Debt interest, as a percentage of GDP, is the lowest it has been for decades so I would say it is currently at a very manageable level.


https://commonslibrary.parliament.uk/research-briefings/sn05745/

But I don't think that accounts for inflation does it? With high inflation as in the 70's and 80's the real value of the national debt reduces significantly year on year, with current levels of inflation it hardly reduces at all. So we might be paying less interest, but the debt isn't going down much in real terms.

It does. That's just the nominal total interest in that year's money/nominal GDP in that year's money.

Yes, I understand that. But it doesn't account for the real total national debt reducing with inflation.

It's like having a £100,000 interest only mortgage at 10% when inflation is 10%. You're paying 10% interest but your debt is reducing by 10% in real terms at the same time. 

If you then buy a bigger house doubling your mortgage to £200,000, but the mortgage rate and inflation have both dropped to 5%, then you're paying the same amount of interest as before (10% of £100k = 5% of £200k), but the real value of your mortgage is only reducing by 5% pa.

So in the first case, your real debt is reducing much faster.

It depends if the borrowers real income had also increased as well.  So a plot of real GDP per capita with the debt interest plot would probably reveal a lot more.  I suspect it will make the debt situation a lot worse now given the steep falls in real GDP per capita.

During the 70s/80s high inflation period, real incomes fell so even though the real value of debt reduced, the real incomes would have reduced as well such that the real debt reduction was not as beneficial as you would think.  We have a different problem in recent years in that there is almost no inflation whilst real GDP per capita is falling a lot making the present situation perhaps a lot worse then 40 years ago.