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Any views on Tax Personal Allowance from April 2031?
Comments
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It's not an "ambition" it's simply planning on the (perhaps misguided) assumption that the tax environment will remain broadly similar in their retirement to now and in the recent past. Based on "promises" from politicians of all colours that tax rates will not increase.
Eg someone 10 years ago who retired with total pensions (inc state) of £30k in 2016 terms may have planned their retirement on the basis that around 2/3 of their pensions will will be taxed at basic rate and none at higher rate (as they were massively below the HRT threshold), so the £30k gross income would translate to about £26k after tax. This would have been a fairly reasonable expectation in 2016.
Now they find that the same real terms income is £47.7k, close to the HRT threshold, and around 3/4 of it will be taxed at basic rate and in a few years some will probably be taxed at higher rate. So even if they were wise enough to buy an index linked annuity, or privileged enough to have a public sector uncapped inflation protected DB pension, their net real income is still going to fall year on year due to fiscal drag.
It's something to account for and try to mitigate in the same way as accounting for other factors affecting pensions/pension investments like inflation, investment returns, annuity rates, etc etc, rather than (seemingly) being told to stop moaning and suck it up.
For instance I was planning to draw a pension income of around £40k in today's terms, but that would likely be mad if the HRT remains frozen, I'll make full use of the current HRT threshold and draw £50k saving the extra in an ISA, then if my £40k indexed gets to over £50k I'll still draw only £50k nominal and top up from the ISA.
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And a few of us have lived our working lives as a basic rate tax payer (by some margin) and had never previously comtemplated that what is now the higher rate limit is not only within reach, but hurtling down the tracks tords us at an every increasing rate.
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As I said before:
The govt share of the economy has increased rapidly over the last 15 years and will in all likelihood continue to increase.
This means the share of income taken by tax has increased and will continue to do so.
This means that a plan that features a fixed in real terms gross income will give a declining net income. Either this declining standard of living can be accepted or it can be mitigated by retiring later to save enough to provide a gross retirement income that increases in real terms every year - for which there are no off the shelf products such as annuity or DB.
I think....2 -
It means the average share of income taken by taxes will increase but as with anything, if you understand the system and are able to make reasonable guesses as to what might happen in the future you can arrange your affairs to hopefully minimise the impact it has on you.
Like with bank charges, finance charges, interest etc, some people pay loads, but those who understand and can manage their finance properly usually pay very little, and can even profit eg through 0% credit cards, bank switching offers etc. Taxes are similar, yes you'll always have to pay tax but there are usually ways to pay less tax than someone in broadly similar circumstances through understanding the system.
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Scotland's multiple tax rates culminating in a top 48 % rate, is a sign to me of where England may well end up out of necessity, especially with corporate UK not pulling its weight in its tax contributions.
And that hasn't gone spectacularly well has it. Although England could fare slightly better implementing it as it would be more difficult to move your tax domicile than in the Scottish case.
Never associate with idiots on their own level, because, being an intelligent man, you'll try to deal with them on their level - and on their level they'll beat you every time.
Being hated by idiots is the price you pay for not being one of them.
Jean Cocteau 1889-1963
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But it's been such a fundamental promise made time and time again in all winning parties manifestos for (I think) every election this century to not raise tax rates, that it would be a "courageous" (see the definition on p.1) chancellor to break it.
There's loads they could do to raise taxes without breaking the promise. Cap on ISAs, reducing the savings allowance or restricting it to the low paid or pensioners, pension tax relief, rises in CGT and savings/dividend taxation, employers NI, NI on BIKs, "sin" taxes increased or extended, IHT, council tax, PA withdrawn at a lower income, maybe even BR band withdrawn or other complicated fudges to increase taxes while keeping the promise. Complicated fudges almost always come with the opportunity to circumvent or exploit them .
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Despite higher Income Tax in Scotland offspring is benefiting from no fees at University so no loans.
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A university system in meltdown. Turning away "free" Scots students in favour of paying "foreigners" simply in an attempt to make ends meet.
Never associate with idiots on their own level, because, being an intelligent man, you'll try to deal with them on their level - and on their level they'll beat you every time.
Being hated by idiots is the price you pay for not being one of them.
Jean Cocteau 1889-1963
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Whatever the political issues it's working well for us. Cheers
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