Labour intentions for pensions

[Alaric]

On that subject, the Conservatives election promise with respect to state pension and taxes is clearly intended to avoid the issue of pensioners who only receive a state pension either having to submit a tax return, or the benefit system having to do PAYE calculations in the term of the next parliament.

If you have triple increase options to the state pension and a freeze on levels of personal allowance against income tax, the two are going to meet fairky soon. It will be a problem for the probable Labour government as well.

If you have a policy of increasing prices by 2% every year, then tax thresholds on income need to increase at the same rate, assuming wages and benefits also increase at at least 2%. Not having this policy drags more and more earners into basic rate taxation at the lower end and higher rate taxation at the top end.

[the0ni0nking]

Surely any party could legislate such that the state pension is exempt from income tax and where your state pension is greater than your personal allowance then you've used your personal allowance up so you can't use it elsewhere.

(Appreciate there is then some complexity around whether the surplus contributes to moving you up on marginal IT rates but it's not an impossibility to put some legislation in place).

If their state pension is less than the personal allowance, then you basically get to take the difference and use it on other income/pensions.

That would allow the state pension to exceed the personal allowance and not cause a raft of issues around self assessment.

Personally, I don't like that as an idea but it's certainly feasible to do (albeit to what extent that might conflict with other legislation is a ?) but if it were passed by Parliament then it could happen.

[TedSwippet]

There is a case for saying that if you don't use indexation, then the CGT rates should be a bit lower, to compensate - but not half.

If not half, then what? On long-run returns from the stock market, pretty much half is inflationary, and the other half is real gain.

[Lootman]

Surely any party could legislate such that the state pension is exempt from income tax and where your state pension is greater than your personal allowance then you've used your personal allowance up so you can't use it elsewhere.

The government could simply state that any annual SP amount paid out to an individual that is over the personal allowance is exempt from income tax.

There is no PAYE nonsense with the SP anyway and that should stay that way since it introduces complications.

The other idea is to let people "sell" their SP entitlement for a one-off lump sum. I'd sell my entitlement for, say, 300K. Tax free of course.

[Adamski]

My own opinion, subject to changing when a manifesto finally appears, is that Reeves will not tinker with the 25% tax free element because a) it will be deeply unpopular with the electorate. b) It will, presumably hit public sector workers with big pensions (like Doctors) unless she makes a separation in the rules between private and public sector pensions. c) It will be just too difficult for the creaking HMRC to oversee.
That is not to say she won't try. But politicians often find being in office a lot harder than they expected and many of the things they thought possible to raise money, are in fact, not possible.

Anything with the word "private" in front of it will be up for grabs.

Private schools, private pensions etc.

The Labour Party is the party of the public sector.

Guarantee DB schemes will be safe. NHS and other DB schemes getting 25% employers contributions will be safe.

Private pensions getting min 3% employers will be under threat.

Nothing will be off the table. We'll get some surprises that's for sure there's no way vat on school fees and tax on non doms will pay for world class public services.

[airbus330]

Anything with the word "private" in front of it will be up for grabs.

Private schools, private pensions etc.

The Labour Party is the party of the public sector.

Guarantee DB schemes will be safe. NHS and other DB schemes getting 25% employers contributions will be safe.

Private pensions getting min 3% employers will be under threat.

Nothing will be off the table. We'll get some surprises that's for sure there's no way vat on school fees and tax on non doms will pay for world class public services.

It has been interesting watching developments over the last week. The Tory's have lost the plot and are doing a scattergun tax give-away, not that it matters as they are toast, particularly post D-Day.
Reeves and Lab in general, have been very careful to say little, except that alterations to the LTA have already been dumped as too difficult. My opinion is that their isn't the intellectual rigour in the Labour ranks to pull off a daring tax raid on the "rich" whatever they are. I expect that they will tinker at the edges and achieve little. Their manifesto might give some clues next week. My guess is that ISA's will be capped as a headline of sorts. And CGT changed, probably. Still too little to fill the gaps in their budget though. I have still not pulled the trigger on my remaining PCLS, but am watching carefully.

[ayshfm1]

I always thought that on reflection they would dump restoring the LTA.

They were going to have to restore it selectively otherwise the older Doctors would incentivised out of the work force. However that same finishing line applied to other high earners who whilst might not be considered worthy of special treatment would be missed by HMRC. Also what Hunt did was reasonably clever, he bounded the amount of tax free leakage and when the benefits were taken tax would be due. In effect it stopped compelling high earners out of the work force and let them build up a big pot(s), which will eventually get taxed.

Except of course it might not, pensions being a very useful way of avoiding IHT and that I think is where Reeves is going to strike.

As an aside I think this would actually raise lots of cash. The obvious one being big pots being taxed on death, but the less obvious being behaviour change wealthy individuals who had been avoiding taking pension cash would find it in their best interests to do so and that's tax in the present.

[hiriskpaul]

I am very pleased to hear that the LTA will not be reintroduced (thank you Hunt & Reeves). I strongly suspect though that some form of death tax or IHT will be introduced instead. I have thought for some time this might happen as it is such an obvious IHT loophole and would be very easy to tax.

The language used by Labour suggests to me that CGT and tax on investment income is going up. Large ISAs may attract attention too. Probably no wealth taxes though, which is a relief.

[Lootman]

The language used by Labour suggests to me that CGT and tax on investment income is going up. Large ISAs may attract attention too. Probably no wealth taxes though, which is a relief.

Changes to CGT and dividend income do not concern me too much. I have spent the last 2 years Labour-proofing my portfolio. And I think any such changes will not be in the first round (September) and so more a 2025-2026 issue at the earliest.

I may even end up ahead if extra taxes on investment income roil UK shares, bonds and sterling, as my UK exposure is now close to zero.

Going after wealth, pensions and ISAs would be a step beyond that. But at that point I would feel betrayed and so freed from any obligation to stay here and pay taxes. I have an exit strategy and if Labour prefers to collect nothing from me, then so be it.

So my attitude towards Starmer and Reeves is, in the words of Reagan: "Trust but verify".

[moorfield]

As an aside I think this would actually raise lots of cash. The obvious one being big pots being taxed on death, but the less obvious being behaviour change wealthy individuals who had been avoiding taking pension cash would find it in their best interests to do so and that's tax in the present.

That may come as a cap on pension size exempt from IHT or that can be passed on I think, so an LTA of sorts. There are still plenty of ways the pension goose can be plucked.

[BullDog]

As an aside I think this would actually raise lots of cash. The obvious one being big pots being taxed on death, but the less obvious being behaviour change wealthy individuals who had been avoiding taking pension cash would find it in their best interests to do so and that's tax in the present.

That may come as a cap on pension size exempt from IHT or that can be passed on I think, so an LTA of sorts. There are still plenty of ways the pension goose can be plucked.

I don't think Ladbrokes would give odds on tax free inheritance of pension pots before age 70 goes (sorry, is it 70 or 75? Same difference though). Likewise pension pots being brought into IHT. Both must be highly likely, I would say.

[airbus330]

Since the Labour manifesto was announced I'm feeling a trifle more relaxed about potential assaults on pensions in the short term. It might be the case that they take DC pots inside the scope of Inheritance Tax, but ways will be found around that. Starmer and reeve appear to be pursuing a Ming vase approach and carefully not letting any future plans out of the bag. Although Rayner, interestingly, did not explicitly reject the idea of CGT being applied to Primary Residences, in the debate yesterday. One to watch, as they would capture a lot of money from that. So, post a big win, maybe a breathing space of a year.

[Sobraon]

That may come as a cap on pension size exempt from IHT or that can be passed on I think, so an LTA of sorts. There are still plenty of ways the pension goose can be plucked.

I think the present government have already done this with the introduction of the "Lump sum and death benefit allowance (LSDBA)" see this Royal London page. But I admit I have still to get my head around it so if I have got it wrong apologies!

[Lootman]

Since the Labour manifesto was announced I'm feeling a trifle more relaxed about potential assaults on pensions in the short term. It might be the case that they take DC pots inside the scope of Inheritance Tax, but ways will be found around that.

Just cash it out, give it away and live for 7 more years!

Rayner, interestingly, did not explicitly reject the idea of CGT being applied to Primary Residences, in the debate yesterday. One to watch, as they would capture a lot of money from that. So, post a big win, maybe a breathing space of a year.

Such a change would cause a lot of short-term dislocations, as people offload properties that they have owned for decades to beat the deadline. Maybe even sell the beneficial interest "off market".

More likely the CGT-free amount would be capped. Longer-term that would lead to a situation like in the US, where people sell their homes every 2 years to take advantage of the $500,000 CGT-free allowance. But is that what the government would really want to see happen?

[airbus330]

Interestiing thread by Dan Niedle
https://threadreaderapp.com/thread/1801 ... =topunroll

[Eboli]

Lootman said:

The government could simply state that any annual SP amount paid out to an individual that is over the personal allowance is exempt from income tax.

Sorry to be late to this discussion but It is not a solution by itself. You would thereby effectively increase the threshold of the 40% tax rate and all the other ridiculous complications that come in with (any) higher rate(s) above that. You need to tweak it with a rule that states that if the SP amount received in any tax year exceeds the personal allowance then that amount is treated as income exempt from the basic rate of income tax (Gifts Relief shows how this can be easily done).

Such is one of the many follies that will soon arise because of the freezing of the personal allowance to 2028. The fact that there have been at least 300,000 PAYE codings adjusted to collect amount of tax < £250 is instructive when you consider that the average cost of a revised manual coding is about £250 (2022/23).

Long live the Rooker-Wise amendment! (The 1970s amendment of two Labour MPs Jeff Rooker and Audrey Wise that forces Government to enact on an annual basis if they wish to prevent personal allowance from being indexed).

Eb.

[scrumpyjack]

Since the Labour manifesto was announced I'm feeling a trifle more relaxed about potential assaults on pensions in the short term. It might be the case that they take DC pots inside the scope of Inheritance Tax, but ways will be found around that.

Just cash it out, give it away and live for 7 more years!

Rayner, interestingly, did not explicitly reject the idea of CGT being applied to Primary Residences, in the debate yesterday. One to watch, as they would capture a lot of money from that. So, post a big win, maybe a breathing space of a year.

Such a change would cause a lot of short-term dislocations, as people offload properties that they have owned for decades to beat the deadline. Maybe even sell the beneficial interest "off market".

More likely the CGT-free amount would be capped. Longer-term that would lead to a situation like in the US, where people sell their homes every 2 years to take advantage of the $500,000 CGT-free allowance. But is that what the government would really want to see happen?

Yes capping is reasonable. But to avoid retrospective taxation, the base cost of your home would have to be the market value at the date the change is introduced. For many people, myself included, it would be very difficult to work out what the cost of our home was. We have had lots of building work improvements since we bought it in 1984. Consequently not much tax would be raised in the short term.

[airbus330]

Its getting like whack-a-mole with the big tax hike mystery.
So, yesterday, Starmer has put a 'never' on record for CGT on Primary Residences.

[redsturgeon]

Moderator Message:
Remember what board this is. Political point scoring is off topic here. Reporting actual Labour intentions is fine.

[mc2fool]

Moderator Message:
Remember what board this is. Political point scoring is off topic here. Reporting actual Labour intentions is fine.

Ha ha ha! That's funny! The whole thread is speculations about what Labour could do. If it was just reporting actual Labour intentions it'd be very short indeed!