Tax thresholds pondering

Grumpy_chap

Andy_L said:

Grumpy_chap said:

Albermarle said:

That's a low threshold for 'rich' and would include many professionals towards later career:

If I remember correctly from the ONS wealth survey, having household assets around £2.5M would put you in the Top 2 or 3 %. I think you need about £4M to get in the Top 1%. Of course the Top 0.01% are in a completely different league.

Do the ONS include Principal Private Residence and pension equity in the definition of wealth / assets?

If it does, would such a wealth tax be simply a version of IHT without the decency to wait until death?

Yes:

"Total net wealth includes four main components:

net property (value of residences minus mortgage debt)

physical (household contents, vehicles)

private pension

net financial (savings or investments minus financial liabilities)"

https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2018tomarch2020

Many thanks Andy.

Considering that against the suggestion that has been made (proposal to tax all those with £2.5m million of assets), it does seem as though it would be counter-productive. 

At any one time, it may be a small percentage of the population that have that level of net worth, but it may not be that small a percentage of the population at any time (there may be many that will have that level of asset at some point).

There are large swathes of the country where a modest 3-bed mid-terrace family home is well over £1m.  
A reasonably successful professional (medic, headteacher, police officer, lawyer, accountant, engineer) or trade (electrician, plumber) could well approach retirement with that modest family home mortgage free plus a pension pot also around £1m.
It does not then require a totally exceptional case to have reached the remaining £500k that makes the total of £2.5m that was proposed to be taxed as unrealised capital gains.  A prudent level of TESSA / ISA savings, a few privatisation shares, some premium bonds, an inheritance, or a well-timed redundancy payout etc.  Certainly, reaching that position is not necessarily one that requires extreme exceptional circumstances.

It's rather odd, actually, that the individual will have spent their 40-odd years of working live building this level of resource with tax incentives to do so (particularly pension) resulting in their being largely financially resilient.  All something the Government has encouraged to achieve a robust populous that does not have to create a demand on tax pools in retirement and to meet care requirements. 

If that was to be subject to a tax based on the £2.5m, the result would be counter-productive as those individuals will then have less self-reserve so more likely to demand greater support in the future.  Would the tax be applied once only, or every year?  You can also imagine that, faced with an annual tax in the event of net worth exceeding £2.5 million, people would take steps to avoid that threshold being reached - exotic holiday, sports car, etc.

Then, how do you resolve the individual's net worth decreasing over time as the pension fund gets spent?

Then, the next rub.  This might be brought in at the £2.5m level on the basis of only being the "top 2 or 3 %" but ignoring that it is a far greater proportion that have this amount "at some time, for some time" so immediately has a far greater catchment.  BUT, as time passes, the net will widen through inaction to catch everybody.  Just like some of these "get the rich" thresholds (or even "normal people" thresholds):

• Business use car mileage 45 pence per mile
• Personal allowance and higher rate thresholds - limited movements in years
• Personal allowance taper £100k
• High rate threshold £150k
• Pension LTA £1.073M (reduced from £1.25M)

It really does seem as though, whenever the Government introduce a a measure that "gets" the rich, that is never the true intention but the cover for "getting" the common man in due course.

Albermarle

Also the £2.5M taking you into the top 2 or 3 % is for households, not individuals. Difficult to impose a wealth tax on a household rather than an individual. 
Even with the ONS data you have to really read the details to make sure whether they are talking about individuals, households or individuals within households.
Probably a lot easier for the Treasury to freeze LTA, personal allowances, IHT limit, put up NI/income tax etc

It really does seem as though, whenever the Government introduce a a measure that "gets" the rich, that is never the true intention but the cover for "getting" the common man in due course.
The public want better public services and lower tax at the same time. Any political party that cuts services or obviously raises taxes is unpopular. So these stealth taxes that eventually affect the majority are an inevitable result of that. 

Grumpy_chap

Albermarle said:

It really does seem as though, whenever the Government introduce a a measure that "gets" the rich, that is never the true intention but the cover for "getting" the common man in due course.
The public want better public services and lower tax at the same time. Any political party that cuts services or obviously raises taxes is unpopular. So these stealth taxes that eventually affect the majority are an inevitable result of that. 

Yes, it is an inconvenient truth that the rich don't actually have that much money when considered as a collective cohort.  If only they worked harder and distributed the wealth from their companies in a less equitable way.

Plus the rich are entirely mobile and if aggressively taxed here, will simply locate their funds and themselves if necessary somewhere they consider more amenable.