Tax Free Lump Sum and 2025 Budget

michaels

OldScientist said:

LHW99 said:

Qyburn said:

LHW99 said:

Not that many in the media picked up on Gordon Brown's cutting of dividend credits to pension funds.

I remember a bunch of publicity, terming it a "raid" on pensions. Plenty still ongoing if you search for "gordon brown pension raid"

Now yes, but at the time plenty in the media about how it was a good move and wouldn't cause many problems. Very few took a longer term view, particularly in the popular press, hence little public reaction at the time.

You might be interested in calculations of the effect on pensions on the change in dividend tax credits at (roughly 12% of the fund value over the lifetime of a pension)

https://www.civitas.org.uk/2011/10/03/how-big-was-gordon-browns-raid-on-pensions/

and a measured review of the changes (the rationale behind the changes is less well known)

https://www.pensionspolicyinstitute.org.uk/media/a55nnloy/200506-bn22-is-5bn-being-taken-every-year-from-pension-funds.pdf
 
By far and away the largest effects, at least on DB pensions, were increased longevity and the fall in interest rates from 1980 to 2020.

I still think we might see an annual 0.25% pension levy as it sounds trivial but of course reduces the overall value of pension savings by about 8%.

Grumpy_chap

ukdw said:

10. I would equalise dividend and cgt rates to the same levels and income tax - but with an inflation allowance.

Equalising CGT to IT is not straightforward.

Consider individual A with some capital which they invest to generate £10k per year which is subject to IT at their marginal rate, could be zero.

Then consider individual B with the same amount of capital which they invest in a manner that yields £400k gain after 40 years but taxed all in one year so the majority at Additional Rate.

A significant difference in the tax liability even though the amount of income is the same.

QrizB

michaels said:
One thought I had is that we should get rid of the personal allowance and instead give every citizen (including children) the 2.5k of tax saving (with an equal deduction from benefits)

£50pw of UBI, in effect.

ukdw

Grumpy_chap said:

ukdw said:

10. I would equalise dividend and cgt rates to the same levels and income tax - but with an inflation allowance.

Equalising CGT to IT is not straightforward.

Consider individual A with some capital which they invest to generate £10k per year which is subject to IT at their marginal rate, could be zero.

Then consider individual B with the same amount of capital which they invest in a manner that yields £400k gain after 40 years but taxed all in one year so the majority at Additional Rate.

A significant difference in the tax liability even though the amount of income is the same.

Agreed - could be an issue.  I guess some of the £400k would be inflation - which would take into account the number of years a bit - maybe an allowance slightly above inflation should be included in the design - to replace any the current annual CGT tax free allowances.

Also I would be proposing removing the additional rate - just having a top rate equivalent to the current 40% rate (but with NI added on).  - Although I guess that would make the top rate close to 60% which sounds a bit high to me.

hugheskevi

ukdw said:

Grumpy_chap said:

ukdw said:

10. I would equalise dividend and cgt rates to the same levels and income tax - but with an inflation allowance.

Equalising CGT to IT is not straightforward.

Consider individual A with some capital which they invest to generate £10k per year which is subject to IT at their marginal rate, could be zero.

Then consider individual B with the same amount of capital which they invest in a manner that yields £400k gain after 40 years but taxed all in one year so the majority at Additional Rate.

A significant difference in the tax liability even though the amount of income is the same.

Agreed - could be an issue.  I guess some of the £400k would be inflation - which would take into account the number of years a bit - maybe an allowance slightly above inflation should be included in the design - to replace any the current annual CGT tax free allowances.

Also I would be proposing removing the additional rate - just having a top rate equivalent to the current 40% rate (but with NI added on).  - Although I guess that would make the top rate close to 60% which sounds a bit high to me.

Sounds a lot like reinventing the past - indexation allowance and taper relief?

ukdw

hugheskevi said:

ukdw said:

Grumpy_chap said:

ukdw said:

10. I would equalise dividend and cgt rates to the same levels and income tax - but with an inflation allowance.

Equalising CGT to IT is not straightforward.

Consider individual A with some capital which they invest to generate £10k per year which is subject to IT at their marginal rate, could be zero.

Then consider individual B with the same amount of capital which they invest in a manner that yields £400k gain after 40 years but taxed all in one year so the majority at Additional Rate.

A significant difference in the tax liability even though the amount of income is the same.

Agreed - could be an issue.  I guess some of the £400k would be inflation - which would take into account the number of years a bit - maybe an allowance slightly above inflation should be included in the design - to replace any the current annual CGT tax free allowances.

Also I would be proposing removing the additional rate - just having a top rate equivalent to the current 40% rate (but with NI added on).  - Although I guess that would make the top rate close to 60% which sounds a bit high to me.

Sounds a lot like reinventing the past - indexation allowance and taper relief?

Agreed - I think we should reintroduce indexation allowance into CGT at the same time as aligning the rate.

Ideally though the indexation should be done automatically either by the tax office or investment provider to avoid the need for tax returns (or at least confusing calculations)  - as that used to be the worst part of filling in a tax return for me.

m_c_s

I suspect with the latest scandal and lawbreaking Reeves will not survive to deliver the budget so I can imagine a more radical budget if the likes of Torsten Bell became Chancellor. I personally would welcome a more strategic and long term approach to tax overall that he has signalled in the past when he was in the Resolution Foundation. Maybe there is not enough time now since I believe the budget does have to be finalised at least 2 weeks before the day to allow for checking and publication of the necessary documents.

Cobbler_tone

m_c_s said:

I suspect with the latest scandal and lawbreaking Reeves will not survive to deliver the budget 

I doubt it, the biggest scandal IMO is that you have to pay £900 to get a licence to rent a property out in certain boroughs. That's crazy. A bit different to the situation surrounding the other one who went. The most tiresome thing is how the opposition and press bang on about it for a week. The biggest watch out in my manor is not carrying a poo bag, if you have a dog of course.

m_c_s

Cobbler_tone said:

m_c_s said:

I suspect with the latest scandal and lawbreaking Reeves will not survive to deliver the budget 

I doubt it, the biggest scandal IMO is that you have to pay £900 to get a licence to rent a property out in certain boroughs. That's crazy. A bit different to the situation surrounding the other one who went. The most tiresome thing is how the opposition and press bang on about it for a week. The biggest watch out in my manor is not carrying a poo bag, if you have a dog of course.

She broke the law. Why is that tiresome? After all it was Starmer who said "You can’t be a lawmaker and a lawbreaker". Reeves is on record as supporting landlord licensing in her own constituency but didn't get a licence herself. 
Torsten Bell could well be the next chancellor and could bring more radical thinking to how people are taxed and perhaps there might be a fairer way to gather tax as a result.

Cobbler_tone

Too political for this neck of the woods @m_c_s

Concentrate on your TFLS.