Looming LTA

Thrugelmir

pip895 said:

Albermarle said:

 The push for keeping the maximum cash in the SIPP is to reduce taxation mainly by keeping monies outside the estate - this though relies on the rules not changing radically in the next 20-30 years.  Any bets on that?   

The ability to perfectly legally  use pensions to avoid IHT seems illogical to me ( even though it will probably benefit me) , so you might think it will change at some point , in some way . Although as seen this week this government ( and previous ones ) tend to shy away from increased tax on wealth, capital etc and prefer to tax working people .

The alternative option of putting into drawdown only enough so that I can stash the tax free cash in ISAs would leave me with a split SIPP for quite a few years, which is more complex and adds to costs.

Are you sure it will cost more ? Will HL charge you for two SIPPs somehow? 

I always assumed it would not cost more to have a pension part crystallised, but I could be wrong.

Taxing wealth may be much less taboo to the next government we get..

Not wealth people are actually earning though. Merely beneficiaries of circumstances. Those with capital can sit in deckchairs and do nothing. 

unkle

I'm in the same boat, my SIPP performance has been ridiculous, roughly 400%in 8 years so LTA will likely be breached.

However in a way I'm happy with that and happy to pay the tax. I'm only paying tax on money I never thought I'd have but due to performance (so not me paying in more).

Would you rather the markets didn't perform so well and your pot reached £750k so no LTA tax, or performed amazing and you reach £1.2m and pay some tax?

I know which I'd rather........ paid the same amount in.

pip895

unkle said:

I know which I'd rather........ paid the same amount in.

I am all for the markets doing well I assure you.  The markets will do what they do..  It’s just that if things were to carry on doing as well as they have been, I would prefer to have more cash in my ISA rather than breaching the LTA in my SIPP😉

unkle

pip895 said:

unkle said:

I know which I'd rather........ paid the same amount in.

I am all for the markets doing well I assure you.  The markets will do what they do..  It’s just that if things were to carry on doing as well as they have been, I would prefer to have more cash in my ISA rather than breaching the LTA in my SIPP😉

I think you are getting too hung up on paying tax and not seeing the bigger picture (I'm assuming you are a 40% tax payer).

Lets say you pay in £100 to your SIPP, (cost £60 due to tax relief) and that doubles in value giving you £200. If above LTA and you take that £200 out you pay £50 in tax (25%) initially so £150 out, lets assume 20% Income tax leaving £120.

Pay that £60 (net pay) into your ISA, doubles to £120....... tax free.......

If you salary sacrifice then the SIPP will slightly out perform.

EDIT - Just noticed your a lower rate tax payer..... whoops!

pip895

unkle said:

pip895 said:

unkle said:

I know which I'd rather........ paid the same amount in.

I am all for the markets doing well I assure you.  The markets will do what they do..  It’s just that if things were to carry on doing as well as they have been, I would prefer to have more cash in my ISA rather than breaching the LTA in my SIPP😉

I think you are getting too hung up on paying tax and not seeing the bigger picture (I'm assuming you are a 40% tax payer).

Lets say you pay in £100 to your SIPP, (cost £60 due to tax relief) and that doubles in value giving you £200. If above LTA and you take that £200 out you pay £50 in tax (25%) initially so £150 out, lets assume 20% Income tax leaving £120.

Pay that £60 (net pay) into your ISA, doubles to £120....... tax free.......

If you salary sacrifice then the SIPP will slightly out perform.

EDIT - Just noticed your a lower rate tax payer..... whoops!

Yes never paid higher rate tax and I have been paying in £2880/annum for years just for the £720 uplift.  Those payments would have been a mistake if I end up paying a lot on the way out.  Now though when I am taking out up to the BR limit I’m trying to work out if continuing to add it in would make any sense.  It would take markets to continue rising on average for the next 15 years or so, at a little above their historical norms for me to breach the LTA at 75.  It seems unlikely at current valuations but is not a zero chance by any means.  

Albermarle

zagfles said:

Albermarle said:

 The push for keeping the maximum cash in the SIPP is to reduce taxation mainly by keeping monies outside the estate - this though relies on the rules not changing radically in the next 20-30 years.  Any bets on that?   

The ability to perfectly legally  use pensions to avoid IHT seems illogical to me ( even though it will probably benefit me) , so you might think it will change at some point , in some way . Although as seen this week this government ( and previous ones ) tend to shy away from increased tax on wealth, capital etc and prefer to tax working people .

What they've done this week goes against the trend. LTA (obviously a capital tax) threshold was at £1.8 million a decade ago, personal tax allowance was about £6k. Basic rate income tax was 22% 15 years ago.

LTA has been massively cut, and now frozen. Personal allowances have risen massively. Tax rates have been cut.

Tax on earned income has been falling (in general) this century. Tax on wealth has been increasing.

The announced NI increase counters the trend.

This BBC article says the opposite .

Quote 

The permanent response to the pandemic recession is to raise taxes on pay packets, working hours, and jobs permanently.

This pattern is not an accident. It is the consistent cross-party political consensus that reflects the perceived political reality of where tax coffers can be squeezed.

The tax base has shifted from capital and wealth to labour and wages over decades.

It seems that property, capital and wealth, particularly in the form of housing is an untouchable asset, and should typically be able to be left free of tax even beyond the grave.

Why tax pay packets more and not property? - BBC News

zagfles

Albermarle said:

zagfles said:

Albermarle said:

 The push for keeping the maximum cash in the SIPP is to reduce taxation mainly by keeping monies outside the estate - this though relies on the rules not changing radically in the next 20-30 years.  Any bets on that?   

The ability to perfectly legally  use pensions to avoid IHT seems illogical to me ( even though it will probably benefit me) , so you might think it will change at some point , in some way . Although as seen this week this government ( and previous ones ) tend to shy away from increased tax on wealth, capital etc and prefer to tax working people .

What they've done this week goes against the trend. LTA (obviously a capital tax) threshold was at £1.8 million a decade ago, personal tax allowance was about £6k. Basic rate income tax was 22% 15 years ago.

LTA has been massively cut, and now frozen. Personal allowances have risen massively. Tax rates have been cut.

Tax on earned income has been falling (in general) this century. Tax on wealth has been increasing.

The announced NI increase counters the trend.

This BBC article says the opposite .

Quote 

The permanent response to the pandemic recession is to raise taxes on pay packets, working hours, and jobs permanently.

This pattern is not an accident. It is the consistent cross-party political consensus that reflects the perceived political reality of where tax coffers can be squeezed.

The tax base has shifted from capital and wealth to labour and wages over decades.

It seems that property, capital and wealth, particularly in the form of housing is an untouchable asset, and should typically be able to be left free of tax even beyond the grave.

Why tax pay packets more and not property? - BBC News

The article is drivel, or rather hugely biased, like a lot of stuff on the BBC. So property and wealth is "untouchable" is it? Really? So explain the following changes in recent years:

Massive cut in the LTA (ie a big increase in what is a "wealth tax")

Extra taxes introduced on second properties (stamp duty, extra council tax): https://www.zoopla.co.uk/discover/buying/q-a-new-3-stamp-duty-surcharges/

Restricted BTL mortgage rate relief: https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Higher CGT rate for property than other assets: https://www.gov.uk/capital-gains-tax/rates

IHT thresholds frozen since 2009, albeit with a property addition in some circumstances

Big real terms rises in council tax, which is a property tax

Whereas on tax on income:

The last time the basic rate of income tax was increased was 1975 !!  When it went up to 35%. Since then income tax rates have been cut again and again.

Personal allowance has increased significantly in real terms particularly over the last decade - ie cutting tax on income

NI rates have risen a little but the primary threshold has been introduced (previously once above the LEL you paid NI on all your income)

The "political consensus" over the last few decades has been to reduce tax on income, not increase it. Labour won 3 elections on the back of a promise not to raise tax rates. The Tories promised the same in 2019. Labour broke their promise, with the financial crisis as an excuse, but even then only on very high earners, and the Tories now with the pandemic.

So it's clear they only want to raise taxes on income in an emergency. But they're quite happy to raise taxes on property and wealth in more normal times.

Albermarle

I suppose the heart of the issue is that property values have increased at a rate way beyond average incomes, and apart from Council tax this wealth increase has remained largely untouched .
Also as an unfortunate secondary effect this increase in property values  has helped to drive an even bigger gap between the haves and have nots in terms of family assets down the generations . 

zagfles

Albermarle said:

I suppose the heart of the issue is that property values have increased at a rate way beyond average incomes, and apart from Council tax this wealth increase has remained largely untouched .
Also as an unfortunate secondary effect this increase in property values  has helped to drive an even bigger gap between the haves and have nots in terms of family assets down the generations . 

IHT thresholds haven't kept pace with house prices, even with the property allowance, so people who wouldn't have paid any IHT tax decades ago will now, and at 40% of the increase in value if their house was at or above the threshold then. So that's hardly "untouched".

There's loads of changes that could be made, personally I'd like to see CGT introduced on owner occupied with rollforwards, as I've written here before, but let's start by actually understanding the situation as it is, without rubbish like the BBC article that claims housing and wealth is "untouchable", which is so blatently untrue as proved above.

Thrugelmir

zagfles said:

Albermarle said:

zagfles said:

Albermarle said:

 The push for keeping the maximum cash in the SIPP is to reduce taxation mainly by keeping monies outside the estate - this though relies on the rules not changing radically in the next 20-30 years.  Any bets on that?   

The ability to perfectly legally  use pensions to avoid IHT seems illogical to me ( even though it will probably benefit me) , so you might think it will change at some point , in some way . Although as seen this week this government ( and previous ones ) tend to shy away from increased tax on wealth, capital etc and prefer to tax working people .

What they've done this week goes against the trend. LTA (obviously a capital tax) threshold was at £1.8 million a decade ago, personal tax allowance was about £6k. Basic rate income tax was 22% 15 years ago.

LTA has been massively cut, and now frozen. Personal allowances have risen massively. Tax rates have been cut.

Tax on earned income has been falling (in general) this century. Tax on wealth has been increasing.

The announced NI increase counters the trend.

This BBC article says the opposite .

Quote 

The permanent response to the pandemic recession is to raise taxes on pay packets, working hours, and jobs permanently.

This pattern is not an accident. It is the consistent cross-party political consensus that reflects the perceived political reality of where tax coffers can be squeezed.

The tax base has shifted from capital and wealth to labour and wages over decades.

It seems that property, capital and wealth, particularly in the form of housing is an untouchable asset, and should typically be able to be left free of tax even beyond the grave.

Why tax pay packets more and not property? - BBC News

 Labour won 3 elections on the back of a promise not to raise tax rates. The Tories promised the same in 2019. Labour broke their promise, with the financial crisis as an excuse, but even then only on very high earners, and the Tories now with the pandemic.

Not true. Brown first raised Employees NIC by 1% in 2002 so as not to break the income tax pledge.  To bury this rise, the announcement was in the small detail of the red budget book and scheduled over a year in advance. Went on to increase it further.