Starmer attempts to define the ' Working Man ', is the investment income surcharge returning?

poseidon1

https://taxingwealth.uk/2023/09/13/an-investment-income-surcharge-in-the-uk-could-raise-up-to-18-billion-of-extra-tax-revenue-a-year/#:~:text=This charged an additional 15,not paid on that income.


Starmer's attempt to the define the working man and support people who 'can't write a cheque to get out of difficulties '  hints at the potential direction of tax raising intiatives. From my perspective this statement holds distinctly unpleasant reminders of the rationale behind the investment income surcharge system which held sway in this country until its repeal in 1985 when the 15% surcharge was abolished.

During the period of its exsistence the vast majority of the working population will have been blissfully unaware of the charge since only the very highest 'earners' in this country ( pop stars, successful actors, industrialists, landed gentry and the like) would have fallen prey to the charge by virtue of their 'investments'. 

At its height in the 1970s the 15% surcharge contributed to the top income tax rates of 90%-98% which hit high earners prompting many to become  tax exiles to escape it ( The Rolling Stones permanent departure from these shores were a prominent example).

The attached link from an obscure left wing lobby group, specifically champions the return of the surcharge on the basis that investment income does not attract national insurance paid by the 'working man' and purports to lay out a blueprint for how the new surcharge should be applied in the modern age.

Evidently the average  working man' is not possessed of an investment income fall back position, so a contorted reasoning process would justify the surcharge has not breaking Labour's pledge not to raise income tax on ' working people '. 

We will soon know if an investment income surcharge will actually make a return, but Labour would do well to recall the exodus of the UK's creative talent in the 1970's which the last surcharge contributed to. 

If the surcharge does return in some form, difficult to see it not being accompanied by future limitations to stocks and shares ISAs which are an obvious mechanism to shelter from the charge.

eskbanker

poseidon1 said:

The attached link from an obscure left wing lobby group, specifically champions the return of the surcharge on the basis that investment income does not attract national insurance paid by the 'working man' and purports to lay out a blueprint for how the new surcharge should be applied in the modern age.

But just to be clear, it was published over a year ago, rather than being aimed specifically at the current government as such....

FlorayG

This morning on R4 a govt official refused to answer the question 'are landlords classed as working people?" despite being asked it several times. their definition of 'working people' will be set to make the govt. the most money, I think

jimjames

With ISAs now there is a substantial quantity of investments and savings that can be stored tax free unlike in the 1960s. It does make you wonder if the ISA will have some limit added

elsien

Working woman here. Just because there are a few of us out there, despite the thread title. 

EthicsGradient

Rather than an "investment income surcharge" which hasn't existed for decades, I'd have thought something like putting the dividend rate of income tax up, to become closer to the earned rate than it is now, would seem more likely. Yes, is it evident that the average working person doesn't have an investment income fall back position, but that's not "contorted" reasoning, it's straightforward and fair.

Changes to ISA contributions might also happen; these are tricky, however, to formulate to catch people who have got the huge benefits from them over many years, without also hitting younger people who feel it's their "turn" to get something from ISAs when they've finally had money to save or invest. If ISAs had carried a lifetime record of contributions with them, it'd be easier to say "cap that"; perhaps the best you can do is "if the total value in all your ISAs exceeds £X, then you can't make any new contributions".

poseidon1

elsien said:

Working woman here. Just because there are a few of us out there, despite the thread title. 

Sorry,  title should have read 'Working People' my unconscious gender bias not Starmers.

poseidon1

EthicsGradient said:

Rather than an "investment income surcharge" which hasn't existed for decades, I'd have thought something like putting the dividend rate of income tax up, to become closer to the earned rate than it is now, would seem more likely. Yes, is it evident that the average working person doesn't have an investment income fall back position, but that's not "contorted" reasoning, it's straightforward and fair.

Changes to ISA contributions might also happen; these are tricky, however, to formulate to catch people who have got the huge benefits from them over many years, without also hitting younger people who feel it's their "turn" to get something from ISAs when they've finally had money to save or invest. If ISAs had carried a lifetime record of contributions with them, it'd be easier to say "cap that"; perhaps the best you can do is "if the total value in all your ISAs exceeds £X, then you can't make any new contributions".

Attacking dividends alone  would not suffice. Significant passive investment income can  and is  derived from interest from corporate bonds, government gilts , national savings and indeed bog standard bank and building savings accounts ( at current interest rates ) . 

 A catch all investment income surcharge  ( probably on anyone in the  top tax brackets ) would seem to be more logical.

However I do agree your opinion on the possibility of some form of  ISA cap to underpin a general attack on all forms of passive investment income. Some form of ' belt and braces ' would be necessary if Labour went down this road.

dunstonh

The investment bond wrapper is expected to come back into play again.   The offshore version in particular.  That has no internal taxation and you can fund switch, sell and buy without triggering CGT.     Only when you draw funds is there tax and the gain is treated under income tax.       So, if dividend tax and CGT result in a greater tax rate than income tax, then offshore bond will replace GIA for some.

Onshore bonds are typically less effective but they still benefit from tapering internally.   So, whilst a basic rate taxpayer would not have any further liability to tax (no CGT either), the internal taxation is around 13-18% depending on asset mix.   With dividends at 8.75% and CGT at 10%, it didn't make sense to have an onshore bond.    However, again, they could come into play with some investors again if the rates rise.

Bonds also have the advantage of being outside of means testing for benefits as long as the reason they were bought was not for that reason.     Back in the 90s, GIAs were uncommon.  Bonds were the taxwrapper of choice.   Its the other way around today but after this budget.....?