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Dividends, a prime taxation target?

General discussions about equity high-yield income strategies
Wizard
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Re: Dividends, a prime taxation target?

#324960

Postby Wizard » July 9th, 2020, 8:36 pm

Arborbridge wrote:
Wizard wrote:
Arborbridge wrote:
Well, apart from the ones who died :(

But the point is that if deaths had been much higher by not wrecking the economy it would have been disproportionately old people who would have died in higher numbers. So many more old lives have been saved, so why should the young be expected to pay the price disproportionately.


Yes, that would have been an even better cull.

So we agree the old benefitted, so I presume we agree they should not expect somebody else to pick up the tab. That's fine then.

fca2019
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Re: Dividends, a prime taxation target?

#324977

Postby fca2019 » July 9th, 2020, 9:15 pm

Difficult politically to hit isa or pensions as would be seen as an attack on the middle class. Besides Rishi is ex Goldman and an ex hedge fund partner so I am sure he's investing friendly.

Arborbridge
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Re: Dividends, a prime taxation target?

#324992

Postby Arborbridge » July 9th, 2020, 10:41 pm

Wizard wrote:So we agree the old benefitted, so I presume we agree they should not expect somebody else to pick up the tab. That's fine then.


That, of course, is an entirely different matter and you cannot go around claiming people agree with you unless they have said so. I guess it's one way of feeding your ego, but don't imagine anyone is fooled except yourself.

Arb.

Wizard
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Re: Dividends, a prime taxation target?

#325003

Postby Wizard » July 9th, 2020, 11:21 pm

Arborbridge wrote:
Wizard wrote:So we agree the old benefitted, so I presume we agree they should not expect somebody else to pick up the tab. That's fine then.


That, of course, is an entirely different matter and you cannot go around claiming people agree with you unless they have said so. I guess it's one way of feeding your ego, but don't imagine anyone is fooled except yourself.

Arb.

So you do not agree that older people were more likely to die from Covid-19 and therefore benefitted more from a reduction in deaths resulting from the mitigation measures? That is all I said we agreed on. I said I presumed that we agreed on the following point, by saying it was my presumption I made clear to readers that it was only my view that we agreed and therefore you could reply to say you do not agree with that presumption. I really think you need to read posts a little more carefully before spraying insults around.

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Re: Dividends, a prime taxation target?

#325013

Postby midgesgalore » July 10th, 2020, 12:15 am

Wizard wrote:
flyer61 wrote:My tuppence worth is that it will be the state pension that gets the treatment. Delay retirement for all by a year and break the triple lock...that should do it!

Seems fair, given it is the older generation that have been by far the biggest beneficiaries of Covid mitigation measures.


You might be old too one day

midgesgalore

Wizard
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Re: Dividends, a prime taxation target?

#325024

Postby Wizard » July 10th, 2020, 6:14 am

midgesgalore wrote:
Wizard wrote:
flyer61 wrote:My tuppence worth is that it will be the state pension that gets the treatment. Delay retirement for all by a year and break the triple lock...that should do it!

Seems fair, given it is the older generation that have been by far the biggest beneficiaries of Covid mitigation measures.


You might be old too one day

midgesgalore

I do not consider myself young now! But I also have children and I can see the impact this is having on them and the rest of their generation.

88V8
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Re: Dividends, a prime taxation target?

#325067

Postby 88V8 » July 10th, 2020, 9:45 am

The pretext for taxing dividends was that they were being used by companies as a substitute for salaries. That does not justify taxing individuals and pension schemes.

And as to the older generation paying for the recovery, our money is already invested in the economy. Moreover, we already paid for the country, the economy and infrastructure, as it now stands. And the govt will steal a large chunk of our assets when we die. I think that is quite enough.

But yes, I suspect divis will be an irresistible target for govts of whatever colour, whether Labour or the current lot whom we might dub Labour Lite.

V8

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Re: Dividends, a prime taxation target?

#325078

Postby dealtn » July 10th, 2020, 10:00 am

88V8 wrote:The pretext for taxing dividends was that they were being used by companies as a substitute for salaries. That does not justify taxing individuals and pension schemes.

And as to the older generation paying for the recovery, our money is already invested in the economy. Moreover, we already paid for the country, the economy and infrastructure, as it now stands. And the govt will steal a large chunk of our assets when we die. I think that is quite enough.

But yes, I suspect divis will be an irresistible target for govts of whatever colour, whether Labour or the current lot whom we might dub Labour Lite.

V8


Income Tax was introduced in the UK in 1799 as a temporary measure to pay for the Napoleonic War. Last time I checked it still exists. In the real world pretexts count for nothing, neither does justification.

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Re: Dividends, a prime taxation target?

#325092

Postby moorfield » July 10th, 2020, 10:21 am

supremetwo wrote:
tea42 wrote:With the eye watering government borrowing in mind an obvious target for increased taxation to pay the debt down must be dividends? A no concession strategy would mean dividends taxed at your normal rate. Perhaps slashing the £20,000 pa ISA limit too, and a limit as to how much you can hold tax free? ie many of the attractions of the HYP eroded.

Opinions?
(Hope this is the correct board?)
Moderator Message:
Moved from HYP-P. -- MDW1954

Dividends?
There will be little tax take at present:- Cut, Cancelled or Suspended Dividends
https://lemonfool.co.uk/viewtopic.php?f=31&t=23864



Yes my first thought too when reading the OP.

I think the ISA limit is an easy target, I haven't seen/found any stats on how many subscribers fill up their entire allowance each year, but I don't imagine that it is a significant number. The political winds may finally be right now to scrap the 25% pension pcls, although that might necessitate more pfaffing around with the LTA to avoid it looking like "double taxation".

A mixture of using dividend and capital gains allowances may be the way we manage our incomes in future, the latter sounding rather "un-HYP".

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Re: Dividends, a prime taxation target?

#325095

Postby Snorvey » July 10th, 2020, 10:25 am

£50 billion a year in pension tax relief would go a long way to paying for all this. I would consider upping the ISA allowance to 40k (i.e. the current maximum pension annual allowance and scrapping tax relief. You may only end up kicking the can down the road a couple of decades, but it could be enough.

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Re: Dividends, a prime taxation target?

#325096

Postby scrumpyjack » July 10th, 2020, 10:26 am

The total market value of adult ISAs is about 600 billion, so a one off tax of 30% to 40% on that might just about cover it?
Of course it wouldn't work like that because suddenly dumping 200 bn of equities on the market would cause prices to fall. Might have to phase it?

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Re: Dividends, a prime taxation target?

#325097

Postby moorfield » July 10th, 2020, 10:28 am

scrumpyjack wrote:Of course it wouldn't work like that because suddenly dumping 200 bn of equities on the market would cause prices to fall.


And yields to rise? Hurrah.

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Re: Dividends, a prime taxation target?

#325168

Postby JohnB » July 10th, 2020, 1:50 pm

Dividend tax rate likely to rise to 20%, and the £2000 allowance to go, but that will only trickle the money in. Pension triple-lock to be become a wages lock, pension tax relief cut.

Actual raids on existing wealth is going to be very hard, especially selling it as a "one off hit", as no-one will believe the precedent won't be repeated.

If its houses, prices will fall, and that seems unacceptable to a Chancellor who wants to prop up the market with a stamp duty holiday. If its pensions, you have the problem of raiding both DC and DB schemes equally. Any raid is likely to be over a certain threshold ("just above me, please"), and will cause the super-rich to hide it, and the middle to redistribute it to family members. I give my nephews money each year for their LISAs, if threatened I'd give them 20 years in advance, buy a new car and fill the house with durables, as I can't see the tax inspectors checking your cupboards. Everyone bringing forward spending would be disruptive to the economy, as little would be spent for years after R-day.

DC pensions could become liable to IHT, as that's a generous loophole that was only opened recently.

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Re: Dividends, a prime taxation target?

#325199

Postby Lootman » July 10th, 2020, 3:22 pm

moorfield wrote:I think the ISA limit is an easy target, I haven't seen/found any stats on how many subscribers fill up their entire allowance each year, but I don't imagine that it is a significant number.

There are a fair number of Lemons here who have said that they max out ISA subscriptions each year. Although 40 grand a year is a lot to find from income, I get the impression that many do what I do and sell shares in a taxable account each year to use up my annual CGT-free allowance and then use the proceeds to subscribe in full to a new year's ISA. There are "bed-and-ISA" schemes that do that for you with some brokers.

My wife and I both do that, and in fact I have maxxed out ISA subscriptions (and PEPs before them) since they started in 1987 or so.

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Re: Dividends, a prime taxation target?

#325206

Postby 1nvest » July 10th, 2020, 3:35 pm

tea42 wrote:With the eye watering government borrowing in mind an obvious target for increased taxation to pay the debt down must be dividends? A no concession strategy would mean dividends taxed at your normal rate. Perhaps slashing the £20,000 pa ISA limit too, and a limit as to how much you can hold tax free? ie many of the attractions of the HYP eroded.

Opinions?

Pre financial crisis and UK debt was around £500Bn. Perhaps costing 5%/year to service. Financial crisis came and the BoE pretty much printed money and bought up all of those Gilts whilst the Treasury sold new Gilts, around twice as many paying half the interest rate. On paper the debt ballooned from 500Bn to 1.5Tn, but as the BoE returns all interest received on the gilts it holds back to the treasury, its costing no more to service. The action of such a big buyer (BoE buying 500Bn of Gilts) pushed up bond prices, lowered yields (and had pension funds reducing bonds to add more stock, pushing stock prices higher).

Whilst on one measure some are saying that UK debt/GDP is at 100% levels, on another measure it might be considered as being no different to when it was down at 30% levels and costing more. Conceptually the BoE could just tear up the Gilts it holds, reducing UK debt down from 1.5Tn to 1Tn and that's paying a very low interest rate, less than inflation, so is being eroded.

Adding 100Bn, 200Bn ... whatever to that is relatively mild given the borrow today and pay back less (in real terms) in 20, 30, whatever years time. Not really a issue. The main priority is any deficit, spending more than revenues/income, which hopefully is a short lived issue. If as and when things get back to some degree of 'normality' then it will become apparent whether its required to cut spending/raise taxes to balance the deficit. The degree of any deficit is unknown, something for a later budgetary review to address as-and-when. For instance state pension payouts might be down £0.5Bn/year due to Covid-19.

Much of the UK economy is consumption based. How it may all pan out ??? My guess is that the economy will rebound once people are back out again 'consuming'. The BoE having acquired 500Bn of Gilts may direct towards yield curve control. Say they'll print money and buy Gilts, or sell Gilts in order to direct yields to a specific rate, say 1%. In awareness of such more usually the market automatically adjusts prices to that rate, without the BoE actually having to do anything. With yields 'fixed' the next most usual outcome is for inflation to spike, such that debt is eroded at savers/pension funds expense, 1% interest, 5% inflation, is as good as a 4% tax on saved sums/pensions. That could all very well occur without taxes having changed, just having any deficit also thrown into that bucket.

May be a case of where its made even more attractive to keep money domestic. Directly hit dividends and ISA's/whatever and the outflow to the US/wherever sees that money lost; Alternatively it may be considered desirable to see a outflow of Pounds (declining £/rising interest rates/inflation) - and that button pressed in order to scale up inflation relative to fixed/low nominal gilt yields after having established 'yield curve control' measures (announcements). Without a crystal ball, no one knows.

There are potential great benefits from Brexit. Chancellor could for instance introduce a withholding tax on dividends, so the likes of UK rail/utilities etc. lost into foreign ownership would see some tax revenues from the dividends - maybe specifically directed at the EU (into where many UK assets were lost as part of decades of the UK subsidising EU competitors). The nice thing about Sovereignty is that you get to set your own rates/taxes/currency ..etc. rather than having to follow a one-size-fits-none (other than perhaps Germany) fiscal policy setup.

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Re: Dividends, a prime taxation target?

#325207

Postby Alaric » July 10th, 2020, 3:36 pm

Lootman wrote: I get the impression that many do what I do and sell shares in a taxable account each year to use up my annual CGT-free allowance and then use the proceeds to subscribe in full to a new year's ISA.


You need wealth in a taxable account to be able to do that, but sources of that are not so uncommon. Redundancy payouts and inheritances would be one source and earnings in excess of expenditure another, particularly when the limits on annual payments into PEPs and ISAs were much lower.

Any government seeking to tax wealth is likely to have an incomplete picture. ISAs and pensions presumably it can track down, but taxable accounts will only partially show up. Share registers will only give a partial picture because of nominee holdings, whilst tax returns won't provide any data on those not completing self assessment.

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Re: Dividends, a prime taxation target?

#325225

Postby ursaminortaur » July 10th, 2020, 4:15 pm

1nvest wrote:
tea42 wrote:With the eye watering government borrowing in mind an obvious target for increased taxation to pay the debt down must be dividends? A no concession strategy would mean dividends taxed at your normal rate. Perhaps slashing the £20,000 pa ISA limit too, and a limit as to how much you can hold tax free? ie many of the attractions of the HYP eroded.

Opinions?

Pre financial crisis and UK debt was around £500Bn. Perhaps costing 5%/year to service. Financial crisis came and the BoE pretty much printed money and bought up all of those Gilts whilst the Treasury sold new Gilts, around twice as many paying half the interest rate. On paper the debt ballooned from 500Bn to 1.5Tn, but as the BoE returns all interest received on the gilts it holds back to the treasury, its costing no more to service. The action of such a big buyer (BoE buying 500Bn of Gilts) pushed up bond prices, lowered yields (and had pension funds reducing bonds to add more stock, pushing stock prices higher).


Gilts with maturities up to seven years are now on negative yields and money markets are now pricing in an interest rate cut by the BoE to zero by the middle of next year and speculating on the possibility of negative interest rates.

https://www.ft.com/content/cc2984d5-7d6b-454c-9220-502a32d599de

UK borrowing costs hit record lows despite widening deficit
.
.
.
UK government borrowing costs sank to record lows on Friday as a global bond rally pushed yields on short-term debt even further below zero.

Five-year gilt yields fell to minus 0.09 per cent, while two-year yields slipped to minus 0.13 per cent. Negative yields, which now cover all gilts with maturities up to seven years, mean investors are in effect prepared to pay the government to borrow.
.
.
.
Negative yields on gilts also suggest growing expectations that the BoE may cut interest rates further in an attempt to stimulate the economy, potentially following Japan and the eurozone in setting negative short-term interest rates.

BoE governor Andrew Bailey said in May the policy was under “active review”, having previously downplayed the chance of a cut below zero. Since then, Mr Bailey has reportedly written to banks warning them of the challenges of negative rates.

Money markets are currently pricing in a cut to zero from the current level of 0.1 per cent by the middle of next year, and a smaller chance of cuts into negative territory afterwards.

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Re: Dividends, a prime taxation target?

#325229

Postby Wizard » July 10th, 2020, 4:34 pm

88V8 wrote:The pretext for taxing dividends was that they were being used by companies as a substitute for salaries. That does not justify taxing individuals and pension schemes.

And as to the older generation paying for the recovery, our money is already invested in the economy. Moreover, we already paid for the country, the economy and infrastructure, as it now stands. And the govt will steal a large chunk of our assets when we die. I think that is quite enough.

But yes, I suspect divis will be an irresistible target for govts of whatever colour, whether Labour or the current lot whom we might dub Labour Lite.

V8

My mistake. I had forgotten the UK was a barren wasteland devoid of any infrastructure before the current pensioners built everything that now exists :lol: As for inheritance tax, unless you plan to fake your own death it is your beneficiaries who will have their inheritance reduced, you feel no pain from that.

Somebody now in their twenties may think that a university education without £60k of debt at the end, a job that is not based on a zero-hours contract, a gold plated final salary pension and a triple-lock on their State pension would be nice, but it isn't an option for them. On top of that they are already going to have to pick up the tab for past generations wrecking the planet. Now it seems some think they also have to pay for Covid mitigation even though statistically they had only a negligable chance of being killed by it. No wonder their is no four letter word that many young people find quite so insulting as to call somebody a "Boomer".

tjh290633
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Re: Dividends, a prime taxation target?

#325231

Postby tjh290633 » July 10th, 2020, 4:46 pm

Wizard wrote:My mistake. I had forgotten the UK was a barren wasteland devoid of any infrastructure before the current pensioners built everything that now exists :lol: As for inheritance tax, unless you plan to fake your own death it is your beneficiaries who will have their inheritance reduced, you feel no pain from that.

Somebody now in their twenties may think that a university education without £60k of debt at the end, a job that is not based on a zero-hours contract, a gold plated final salary pension and a triple-lock on their State pension would be nice, but it isn't an option for them. On top of that they are already going to have to pick up the tab for past generations wrecking the planet. Now it seems some think they also have to pay for Covid mitigation even though statistically they had only a negligable chance of being killed by it. No wonder their is no four letter word that many young people find quite so insulting as to call somebody a "Boomer".

You do write a lot of rubbish, don't you. Some now in their 20s may feel moved to get a permanent job in the Civil Service and enjoy most of those benefits. Actually the burden of a massive National Debt will fall on all the population, young and old alike.

What the government has to do is to make the economic and taxation regime sufficiently encouraging, for the private sector to provide what infrastructure is needed. It has done it in the past and it can do it again. What it needs is for the Government to provide encouragement and to keep its hands off it. Facilitate planning processes, rather than hinder them.

TJH

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Re: Dividends, a prime taxation target?

#325247

Postby Julian » July 10th, 2020, 5:47 pm

JohnB wrote:Dividend tax rate likely to rise to 20%, and the £2000 allowance to go, but that will only trickle the money in. Pension triple-lock to be become a wages lock, pension tax relief cut.

Actual raids on existing wealth is going to be very hard, especially selling it as a "one off hit", as no-one will believe the precedent won't be repeated.

If its houses, prices will fall, and that seems unacceptable to a Chancellor who wants to prop up the market with a stamp duty holiday. If its pensions, you have the problem of raiding both DC and DB schemes equally. Any raid is likely to be over a certain threshold ("just above me, please"), and will cause the super-rich to hide it, and the middle to redistribute it to family members. I give my nephews money each year for their LISAs, if threatened I'd give them 20 years in advance, buy a new car and fill the house with durables, as I can't see the tax inspectors checking your cupboards. Everyone bringing forward spending would be disruptive to the economy, as little would be spent for years after R-day.

DC pensions could become liable to IHT, as that's a generous loophole that was only opened recently.


Change to dividend taxation - agreed that is likely to be an attractive target. Also one justification for the £2,000 allowance is to avoid small shareholders having to fill in an SA100. That objection could be countered by introducing a divi withholding tax at whatever the base rate for dividends is set at (currently 7.5%). Various other countries do that already and deducting at least some of the tax at source (higher rate tax payers would still need to declare and pay additional tax) must surely be attractive to a government in terms of cash flow, simplicity, and avoiding lost tax due to non-declarations. With international precedent set I can see that direction of travel as attractive to HMG as well.

Reversing the logic above makes me wonder what the future might hold for the cash interest allowance, currently £1,000 pa for basic rate tax payers and £500 for higher rate unless things have changed when I wasn't paying attention. Wasn't tax deduction at source for interest payments stopped when that £1,000/£500 allowance was introduced? Maybe if HMG abolished that allowance as well they could go back to deducting basic rate tax on interest at source.

Wealth tax is still the one that potentially worries me the most depending on the threshold and rate(s) set if it were to become a reality. Selling it as a "one off hit" might also be a sneaky way for HMG to address the issue of disclosure of assets you (John) mention in your final paragraph. Maybe some people who genuinely did believe it was a one-off hit might be more willing to disclose assets as-is rather than go through the complexities of hiding them and once HMRC has at least an initial snapshot of assets from the supposedly one-off collection year it probably makes it easier for them to track and challenge future years' declarations if such a one-off wealth tax was subsequently to (surprise, surprise) become more permanent.

- Julian


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