Labour intentions for pensions

[kempiejon]

NI on pensions seems unlikely. Cut to NI seems foolish.

The current government have been doing it by stealth. That's why they have been reducing NICs, while not indexing personal allowances. That way they will have pensioners and others with unearned income paying income tax which now incorporates NICs.

It's obvious to me, as one who has been caught by this stealth approach.

TJH

I'm not sure I recognise unearned income, if you mean pensions, investments, rent, royalties etc I can see all governments thinking that income isn't different to, for example, wages for toil so why exempt it from societal obligations to fund government activities and pubic spending? I have not been troubled by income tax for some time but why would government see different incomes in respect of levying a charge on it.

It's annoying when regulations change and we have a change in liabilities mind. I might have to work a little harder to avoid a bill or accept that's what society costs.

[tjh290633]

The current government have been doing it by stealth. That's why they have been reducing NICs, while not indexing personal allowances. That way they will have pensioners and others with unearned income paying income tax which now incorporates NICs.

It's obvious to me, as one who has been caught by this stealth approach.

TJH

I'm not sure I recognise unearned income, if you mean pensions, investments, rent, royalties etc I can see all governments thinking that income isn't different to, for example, wages for toil so why exempt it from societal obligations to fund government activities and pubic spending? I have not been troubled by income tax for some time but why would government see different incomes in respect of levying a charge on it.

It's annoying when regulations change and we have a change in liabilities mind. I might have to work a little harder to avoid a bill or accept that's what society costs.

Unearned income is that from investments primarily, plus rents, etc. There was a time when unearned income suffered 15% extra tax. That's how the 83% top rate became 98% for many people, like pop stars.

Then it was equalized, but NICs put earned income at a disadvantage. The stealth is reverting back to the bad old days.

TJH

[kempiejon]

Unearned income is that from investments primarily, plus rents, etc. There was a time when unearned income suffered 15% extra tax. That's how the 83% top rate became 98% for many people, like pop stars.

Then it was equalized, but NICs put earned income at a disadvantage. The stealth is reverting back to the bad old days.

TJH

So investments and rental income have for ages been unfairly taxed compared to wages or enterprise and it is being harmonized? At least the pop stars have had a good run.

[Urbandreamer]

Unearned income is that from investments primarily, plus rents, etc. There was a time when unearned income suffered 15% extra tax. That's how the 83% top rate became 98% for many people, like pop stars.

Then it was equalized, but NICs put earned income at a disadvantage. The stealth is reverting back to the bad old days.

TJH

So investments and rental income have for ages been unfairly taxed compared to wages or enterprise and it is being harmonized? At least the pop stars have had a good run.

The problem is the use of the word "fair". Some place work (the sweat of the brow) upon an alter and decry those who don't work for a living (though they may provide employment for others).
Such people would regard it "fair" if tax upon "unearned income" was high.
They often make comments about the rentier class.
https://en.wikipedia.org/wiki/Rentier_capitalism

[kempiejon]

The problem is the use of the word "fair". Some place work (the sweat of the brow) upon an alter and decry those who don't work for a living (though they may provide employment for others).
Such people would regard it "fair" if tax upon "unearned income" was high.
They often make comments about the rentier class.
https://en.wikipedia.org/wiki/Rentier_capitalism

Some wouldn't though.
Investments and rental income have for ages been taxed differently compared to wages or enterprise and it is being harmonized? At least the pop stars have had a good run.
Perhaps there isn't really fair except in the cave.

[LondonChris]

IFS response this mornimg to the FT article re labour not reintroducing the LTA: "If the Lifetime Allowance ... is not to be reintroduced, this makes comprehensive reform of pensions taxation all the more pressing. There is a good case to reduce the limit on the amount that can be taken tax-free from pensions, to bring at least big pension pots into the scope of inheritance tax and to rationalise the extremely generous treatment of employer pension contributions [No NICs]".

[the0ni0nking]

Given the commitments not to increase IT and NI on the employee (other than by the impact of fiscal drag), the likelihood that they (Labour basically but in reality would likely also apply to the no hope Tories) will go after the employer in some way, shape or form has to be very high.

But all that will do is stifle the desire of the employers to take on - or even retain - employees if it means they now cost 10% or however much % more due to changes in tax breaks etc.

Hardly seems to me a good recipe to get a dynamic and growing economy again.

[ursaminortaur]

So investments and rental income have for ages been unfairly taxed compared to wages or enterprise and it is being harmonized? At least the pop stars have had a good run.

The problem is the use of the word "fair". Some place work (the sweat of the brow) upon an alter and decry those who don't work for a living (though they may provide employment for others).
Such people would regard it "fair" if tax upon "unearned income" was high.
They often make comments about the rentier class.
https://en.wikipedia.org/wiki/Rentier_capitalism

The reason that dividends are taxed at a lower rate than bonds which are taxed at the same rate as income is that dividends are paid out of corporation taxed company profits whereas bonds are paid out of untaxed company income. Hence taxing dividends at the same rate as bonds or other income would involve some double taxation of dividends compared to bonds. Hence up until Osborne made changes in 2015 only higher rate tax payers had to pay extra tax on dividends. Osborne though changed that and as part of a simplification which got rid of a notional 10% tax credit instead decided to tax basic rate taxpayers at 7.5% with a £5000 dividend allowance. Since then that rate has increased to 8.5% and the allowance has progressively shrunk with many thinking that eventually the allowance will disappear completely and dividend rates for both basic and higher rate taxpayers on dividends will be equalised with income tax rates (totally ignoring the fact that dividends have already suffered corporation tax unlike bonds).

[Lootman]

The reason that dividends are taxed at a lower rate than bonds which are taxed at the same rate as income is that dividends are paid out of corporation taxed company profits whereas bonds are paid out of untaxed company income. Hence taxing dividends at the same rate as bonds or other income would involve some double taxation of dividends compared to bonds. Hence up until Osborne made changes in 2015 only higher rate tax payers had to pay extra tax on dividends. Osborne though changed that and as part of a simplification which got rid of a notional 10% tax credit instead decided to tax basic rate taxpayers at 7.5% with a £5000 dividend allowance. Since then that rate has increased to 8.5% and the allowance has progressively shrunk with many thinking that eventually the allowance will disappear completely and dividend rates for both basic and higher rate taxpayers on dividends will be equalised with income tax rates (totally ignoring the fact that dividends have already suffered corporation tax unlike bonds).

Another reason dividends should be taxed at a lower rate is that dividends are (part of) the reward for risking capital. The reasoning is that people should feel incentivised to invest in businesses and opportunities because that is good for the nation and the economy. And so the tax rate should be lower for dividends (which may never arrive) than for salaries, which are assured and you receive merely by showing up.

You can of course make the same argument for the lower rates of CGT. Although in that case there is another argument as well - that part of every capital gain is a component that is merely inflation, which is not a real gain and yet you are taxed as if it is.

Same for rents, premia and other forms of non-employment income. Treating all forms of income the same is to be quite ignorant of the details, in my view. But lefties prefer to call such risk-taking "unearned" income, as if there is something wrong and undesirable about that.

[EthicsGradient]

Another reason dividends should be taxed at a lower rate is that dividends are (part of) the reward for risking capital. The reasoning is that people should feel incentivised to invest in businesses and opportunities because that is good for the nation and the economy. And so the tax rate should be lower for dividends (which may never arrive) than for salaries, which are assured and you receive merely by showing up.

You can of course make the same argument for the lower rates of CGT. Although in that case there is another argument as well - that part of every capital gain is a component that is merely inflation, which is not a real gain and yet you are taxed as if it is.

Same for rents, premia and other forms of non-employment income. Treating all forms of income the same is to be quite ignorant of the details, in my view. But lefties prefer to call such risk-taking "unearned" income, as if there is something wrong and undesirable about that.

That's ... quite a political take on work. I'd guess you have worked some time in your life; whether you "merely showed up", or if you actually put effort into your job(s), I don't know. Salaries are, of course, not "assured"; people have to do satisfactory work to remain in employment, and to keep the business thriving (or to do a fundamental public service), may get bonuses depending on good work, or may be self-employed and be entirely dependent on customer satisfaction and recommendation. Investing in businesses and opportunities is only "good for the nation and the economy" if you invest in the UK; would you therefore advocate a much higher taxation of foreign assets? Investing in the UK is only good if there are UK workers involved - you know, the people you think "merely show up".

While in theory indexation of costs would make capital gains calculations fairer, in practice it's only when capital growth is little more than inflation (or less than it) that it makes much difference. Setting the CGT rate at a little under the income tax rate can roughly make up for this without the complications of calculation (18% / 20% may be a little too close; 28% / 40% a little too wide apart; but the current 10% / 20% and 20% / 40% seems over-generous for capital gains).

[Lootman]

Another reason dividends should be taxed at a lower rate is that dividends are (part of) the reward for risking capital. The reasoning is that people should feel incentivised to invest in businesses and opportunities because that is good for the nation and the economy. And so the tax rate should be lower for dividends (which may never arrive) than for salaries, which are assured and you receive merely by showing up.

You can of course make the same argument for the lower rates of CGT. Although in that case there is another argument as well - that part of every capital gain is a component that is merely inflation, which is not a real gain and yet you are taxed as if it is.

Same for rents, premia and other forms of non-employment income. Treating all forms of income the same is to be quite ignorant of the details, in my view. But lefties prefer to call such risk-taking "unearned" income, as if there is something wrong and undesirable about that.

That's ... quite a political take on work. I'd guess you have worked some time in your life; whether you "merely showed up", or if you actually put effort into your job(s), I don't know. Salaries are, of course, not "assured"; people have to do satisfactory work to remain in employment, and to keep the business thriving (or to do a fundamental public service), may get bonuses depending on good work, or may be self-employed and be entirely dependent on customer satisfaction and recommendation. Investing in businesses and opportunities is only "good for the nation and the economy" if you invest in the UK; would you therefore advocate a much higher taxation of foreign assets? Investing in the UK is only good if there are UK workers involved - you know, the people you think "merely show up".

While in theory indexation of costs would make capital gains calculations fairer, in practice it's only when capital growth is little more than inflation (or less than it) that it makes much difference. Setting the CGT rate at a little under the income tax rate can roughly make up for this without the complications of calculation (18% / 20% may be a little too close; 28% / 40% a little too wide apart; but the current 10% / 20% and 20% / 40% seems over-generous for capital gains).

Actually the argument is not specifically a UK one. Several nations do not apply a capital gains tax to securities investments by individuals including Switzerland, Belgium, Czech Republic, Malta, Slovenia, Slovakia and Turkey. The US has a 15% CGT rate although income taxes go up to 37% (federal).

Across Europe, the average tax rate on dividends is 20%, lower than the 40% plus on "earned" income. In the US, again 15%.

So it is a broadly adopted principle that taxes on at-risk capital returns should be lower than on employment income. And personally I am not interested in risking my capital if any resultant gains are taxed at 40% or 45%. Just not happening.

[EthicsGradient]

That's ... quite a political take on work. I'd guess you have worked some time in your life; whether you "merely showed up", or if you actually put effort into your job(s), I don't know. Salaries are, of course, not "assured"; people have to do satisfactory work to remain in employment, and to keep the business thriving (or to do a fundamental public service), may get bonuses depending on good work, or may be self-employed and be entirely dependent on customer satisfaction and recommendation. Investing in businesses and opportunities is only "good for the nation and the economy" if you invest in the UK; would you therefore advocate a much higher taxation of foreign assets? Investing in the UK is only good if there are UK workers involved - you know, the people you think "merely show up".

While in theory indexation of costs would make capital gains calculations fairer, in practice it's only when capital growth is little more than inflation (or less than it) that it makes much difference. Setting the CGT rate at a little under the income tax rate can roughly make up for this without the complications of calculation (18% / 20% may be a little too close; 28% / 40% a little too wide apart; but the current 10% / 20% and 20% / 40% seems over-generous for capital gains).

Actually the argument is not specifically a UK one. Several nations do not apply a capital gains tax to securities investments by individuals including Switzerland, Belgium, Czech Republic, Malta, Slovenia, Slovakia and Turkey. The US has a 15% CGT rate although income taxes go up to 37% (federal).

Across Europe, the average tax rate on dividends is 20%, lower than the 40% plus on "earned" income. In the US, again 15%.

So it is a broadly adopted principle that taxes on at-risk capital returns should be lower than on employment income. And personally I am not interested in risking my capital if any resultant gains are taxed at 40% or 45%. Just not happening.

Well, sort of. Taking the US current rates, it's 15% for those (single) withincome between $44,625 and $492,300; their marginal income tax rates will be between 22% and 35%. So for most (earning up to $182k), it's over half the income tax rate. Similarly, for the very rich, it's 20% CGT, and 37% income.

The resultant gains are net resultant gains, remember. Sure, it might seem a poor outcome if some of your risks turn out bad and you lose money on them, and some turn out well but you pay tax on them. But you can uses the losses so that you never pay tax unless you've actually come out ahead overall.

Are you on board with taxing foreign gains at a much higher rate than genuine investment (or work) in the UK, then? That seems the logical point of your "people should feel incentivised to invest in businesses and opportunities because that is good for the nation and the economy".

[Lootman]

Are you on board with taxing foreign gains at a much higher rate than genuine investment (or work) in the UK, then? That seems the logical point of your "people should feel incentivised to invest in businesses and opportunities because that is good for the nation and the economy".

No, in general I am opposed to such beggar-thy-neighbour differential tax policies. I fear such an implementation would trigger tit-for-tat "reprisal" tax increases for foreign individuals and entities investing in the UK and it would be a race to the bottom, that we would lose.

In fact to some extent we are already losing out. There is no CGT for foreigners investing in the UK. Nor is there any tax withholding on UK dividends paid out to foreigners. Erecting barriers to that open and inviting investment situation can hardly be good for the UK.

What I really find so depressing about the current political climate is how every party cannot look at someone being successful without thinking about how they can get their pound of flesh out of him, or her. In our desperation to prolong our doomed cradle-to-grave welfare entitlement system we will sacrifice the successful to save the failures, and punish our winners to rescue our losers.

Nobody ever built a great nation that way, ever.

[EthicsGradient]

Are you on board with taxing foreign gains at a much higher rate than genuine investment (or work) in the UK, then? That seems the logical point of your "people should feel incentivised to invest in businesses and opportunities because that is good for the nation and the economy".

No, in general I am opposed to such beggar-thy-neighbour differential tax policies. I fear such an implementation would trigger tit-for-tat "reprisal" tax increases for foreign individuals and entities investing in the UK and it would be a race to the bottom, that we would lose.

In fact to some extent we are already losing out. There is no CGT for foreigners investing in the UK. Nor is there any tax withholding on UK dividends paid out to foreigners. Erecting barriers to that open and inviting investment situation can hardly be good for the UK.

What I really find so depressing about the current political climate is how every party cannot look at someone being successful without thinking about how they can get their pound of flesh out of him, or her. In our desperation to prolong our doomed cradle-to-grave welfare entitlement system we will sacrifice the successful to save the failures, and punish our winners to rescue our losers.

Nobody ever built a great nation that way, ever.

But you are in favour of a beggar-thy-neighbour differential tax policy if it's "person with money to take risks with on markets anywhere in the world" versus "person who does useful work in the UK" - you say the useful work should be taxed at higher rate.

However, I'm not suggesting tax increases for foreign individuals and entities investing in the UK - I'm suggesting, from your wish for "investing in businesses and opportunities because that is good for the nation and the economy" that therefore UK people investing outside the UK should be taxed at a higher rate than UK people investing inside. From your idea of encouraging things that are good for the nation and the economy, this should be at a higher rate than income tax in the UK. This was kind of the spirit of the original PEPs, though I think a rule about what counts as UK investment would need to be more than "listed on the FTSE". I don't think there'd be "reprisals" for that; perhaps other countries might think "yes, we need more investment of our own capital at home too", but that's not a reprisal, it's using the idea. It's not as if British money is driving the world's investment economy.

Talking of PEPs, the "why is capital taxed so heavily" argument rather falls down when ISAs and pensions, with generous contribution limits of £20k and salary, are free of income and capital gains tax. It's people (including me, I should say) with plenty of capital who pay some CGT, on the amounts we haven't been able to shelter.

Our "doomed cradle-to-grave welfare entitlement system" educates people and keeps them healthy. Yes, that really is how you "build a great nation". And to run it, the tax system looks for who has more money than they need to barely exist, and taxes some of it. These are the people who do well from a country in which people get educated, kept healthy, and can then work in the businesses and opportunities you like.

[Lootman]

No, in general I am opposed to such beggar-thy-neighbour differential tax policies. I fear such an implementation would trigger tit-for-tat "reprisal" tax increases for foreign individuals and entities investing in the UK and it would be a race to the bottom, that we would lose.

In fact to some extent we are already losing out. There is no CGT for foreigners investing in the UK. Nor is there any tax withholding on UK dividends paid out to foreigners. Erecting barriers to that open and inviting investment situation can hardly be good for the UK.

What I really find so depressing about the current political climate is how every party cannot look at someone being successful without thinking about how they can get their pound of flesh out of him, or her. In our desperation to prolong our doomed cradle-to-grave welfare entitlement system we will sacrifice the successful to save the failures, and punish our winners to rescue our losers.

Nobody ever built a great nation that way, ever.

But you are in favour of a beggar-thy-neighbour differential tax policy if it's "person with money to take risks with on markets anywhere in the world" versus "person who does useful work in the UK" - you say the useful work should be taxed at higher rate..

No, I am in favour of lighter taxation for those who risk capital when compared to those who take no real risk and merely show up. That aligns us wi Do you?th most other developed nations. If you do not believe in that then you must think that the UK has been getting this wrong for the last 45 or so years.

And so far the only party that is advocating what you seem to prefer are the Greens. So will they get your vote?

[EthicsGradient]

But you are in favour of a beggar-thy-neighbour differential tax policy if it's "person with money to take risks with on markets anywhere in the world" versus "person who does useful work in the UK" - you say the useful work should be taxed at higher rate..

No, I am in favour of lighter taxation for those who risk capital when compared to those who take no real risk and merely show up. That aligns us wi Do you?th most other developed nations. If you do not believe in that then you must think that the UK has been getting this wrong for the last 45 or so years.

And so far the only party that is advocating what you seem to prefer are the Greens. So will they get your vote?

Well, I think that if you ask any politician if they think that working people "merely show up", they'll tell you you're wrong. I'm guessing from your repeated use of this that when you were employed (or still are?), you just "showed up". No, not the last 45 years or so - the rates were aligned under Thatcher and Major, remember. Political parties don't always set their policies by what is fair, but often by either what will get them votes, or what will get them donations, so often tax policy favours the rich.

The Lib Dems have proposed CGT bands - 20% CGT on gains from £5k to £50k, 40% on the gains between £50k and £100k, and 45% above that. That sounds good to me, and it happens, for a variety of reasons, that they'll get my vote. The Greens would be a possibility.

[Lootman]

If you do not believe in that then you must think that the UK has been getting this wrong for the last 45 or so years.
No, not the last 45 years or so - the rates were aligned under Thatcher and Major, remember.

The Lib Dems have proposed CGT bands - 20% CGT on gains from £5k to £50k, 40% on the gains between £50k and £100k, and 45% above that. That sounds good to me, and it happens, for a variety of reasons, that they'll get my vote. The Greens would be a possibility.

Under Thatcher/Major we still had a separate nil-rate band for CGT, and we had indexation. CGT rates went down under Brown because he abolished indexation. Are you proposing that gains be indexed again?

That you would consider voting for the two parties planning to tax the TLF demographic the hardest does not surprise me, but it does sadden me.

[MuddyBoots]

The Lib Dems have proposed CGT bands - 20% CGT on gains from £5k to £50k, 40% on the gains between £50k and £100k, and 45% above that. That sounds good to me, and it happens, for a variety of reasons, that they'll get my vote. The Greens would be a possibility.

I can see the argument for this in principle, however I wish they would align all the tax brackets/bands rather than have different levels for IT, NI, CGT etc. The Lib Dems' proposal of a £5k basic band for CGT seems unfairly low to me, why not have a single banding system for all these taxes and score a goal for tax simplification too.

[EthicsGradient]

The Lib Dem proposal raises the nil rate band for capital gains from the current £3k to £5k. It's not that complicated counting capital gains and income under separate systems; indeed, you might see it as simpler - there's no "what happens when the added income and CG go over the income band threshold" questions (does that affect the PSA, for instance? It's not immediately obvious).

Lootman, indexation would be the fairest way; it does complicate things (eg if you've been investing regularly, you need to apply a separate indexation amount to each month). Fine if you're handy with a spreadsheet, but many people aren't. I haven't heard of any party proposing reintroducing indexation, however. 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. And yes, the TLF demographic should be targeted, since we have more money than average. Progressive taxation is Good Thing when there's a need for revenue.

[Urbandreamer]

The Lib Dems' proposal of a £5k basic band for CGT seems unfairly low to me, why not have a single banding system for all these taxes and score a goal for tax simplification too.

Just to state what I hope is obvious:
Most people pay income tax and NI under PAYE.
Nobody pays CGT under PAYE.

CGT is NOT simpler for those who pay than PAYE.

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.