Dividends, a prime taxation target?

[tea42]

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

[NeilW]

"With the eye watering government borrowing in mind an obvious target for increased taxation to pay the debt down must be dividends? "

Probably not the correct board.

Plus the premise is completely incorrect in any case. When you see 'government debt' substitute 'private wealth in the form of Gilts'. Then you'll see where the 'tax' comes from - when people decide to spend the store of value in the Gilts. The spending/income chain that induces generates additional transactions and additional taxation that will match the amount in the Gilt. It's a simple geometric progression - in Sterling which has to be spent here.

Similarly when you see 'reduce government debt' read 'reduce private wealth in the form of Gilts'. Then ask "why do we want to cripple pension funds?".

Once you do that you'll be more informed than most journalists and government advisors.

[Dod101]

NeilW has clearly found the money tree. Makes me wonder why anybody bothers to work.

On the OP's point, there is always a risk of increasing taxation on dividends but most of us over time will have been taking advantage of the protection offered by SIPPs and ISAs and we should all be continuing to do that. They seem to me to be quite generous nowadays and we should all use that generosity whilst it is on offer.

Dod

[scrumpyjack]

As most dividends are paid to pension funds, personal pensions and a smaller amount to ISAs, raising the tax on personal dividends really wouldn't raise very much. He needs to raise indirect taxes like VAT or petrol duties etc to raise a lot, but can't do that politically nor risk any substantial tax rises which wold choke the recovery. It's a once in a hundred years event so recover it over a century, or don't bother. He could sell gilts to the BofE who would then pass the interest back to him - ie print it - which is what he's doing.

So the long term strategy is to pay it off by devaluing the liability via inflation. It's what HMG have always done before.

[Alaric]

So the long term strategy is to pay it off by devaluing the liability via inflation. It's what HMG have always done before.

If the borrowing is in index linked form, inflation increases rather than reduces the eventual bill to be settled. The Great War had been financed at interest rates of 4% and higher. As a consequence when in the 1920s and 1930s Governments wanted or needed to spend on social security or defence, they couldn't afford to if they tried to balance the budget as well, the interest coupons being a first charge on Government expenditure. In WW2, they followed Keynes advice and kept interest rates low and in the 1950s and 1960s allowed continuous inflation.

[scrumpyjack]

The great majority of UK gilts are conventional not indexed. HMG has been reluctant to issue too much, presumably because they can't be devalued.
There is great demand for ILGs from pension funds etc but it is not satisfied by the available issues so the price has been bid up to guarantee a real loss.

[supremetwo]

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

[flyer61]

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!

[Lootman]

NeilW has clearly found the money tree. Makes me wonder why anybody bothers to work.

Millions don't bother to work, choosing the welfare lifestyle option instead, courtesy of the taxpayer magic money tree.

On the OP's point, there is always a risk of increasing taxation on dividends but most of us over time will have been taking advantage of the protection offered by SIPPs and ISAs and we should all be continuing to do that. They seem to me to be quite generous nowadays and we should all use that generosity whilst it is on offer.

As more UK residents have million pound plus ISAs, the clamour to do something about all that tax-free money will grow. If Corbyn had won it would have already happened, using the virus as a pretext.

Maybe a 1% annual levy on ISA valuation at year-end, taken by the ISA issuer and remitted to the government?

[scrumpyjack]

The advantage of large ISAs, for HMG, is that people tend to hang on to them til death do us part, then HMG gets 40%!

[Lootman]

The advantage of large ISAs, for HMG, is that people tend to hang on to them til death do us part, then HMG gets 40%!

Yes, exactly. It is an irony that the things that are the most tax-efficient when you are alive, bite you in the butt when you die. You can't take steps to avoid IHT as long as your wealth is tied up in an ISA.

Ditto for property as well for that matter.

[Wizard]

As most dividends are paid to pension funds, personal pensions and a smaller amount to ISAs, raising the tax on personal dividends really wouldn't raise very much. He needs to raise indirect taxes like VAT or petrol duties etc to raise a lot, but can't do that politically nor risk any substantial tax rises which wold choke the recovery. It's a once in a hundred years event so recover it over a century, or don't bother. He could sell gilts to the BofE who would then pass the interest back to him - ie print it - which is what he's doing.

So the long term strategy is to pay it off by devaluing the liability via inflation. It's what HMG have always done before.

Yes of course, let’s load it up on our children, grand children and great grand children. No wonder so many of the young have such a low opinion of so many older people.

[Wizard]

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.

[dealtn]

The great majority of UK gilts are conventional not indexed. HMG has been reluctant to issue too much, presumably because they can't be devalued.
There is great demand for ILGs from pension funds etc but it is not satisfied by the available issues so the price has been bid up to guarantee a real loss.

About 25% of the UK Govt's debt is Index Linked Gilts. Conventional Gilts make up about 50%. (Both measures in nominal terms so subject to change due to market prices, and of course inflation!).

So I take some issue with a description of "great majority" but maybe this is just differences of opinion on language. Its been 4 years since I was involved in this market directly, but I doubt much has changed. HMG isn't reluctant to issue too much, indeed much of the decisions here are devolved to the DMO within the Bank of England remit. What is striking is the proportion of index linked debt in the UK is considrably higher than elsewhere. Across the G7 for instance we would be the greatest proportionate issuer, and even then have a proportion of about double of the next country (Italy).

[Arborbridge]

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.

Well, apart from the ones who died The National Cull of sick and elderly, making way for young and vigorous growth??

[Wizard]

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.

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.

[dealtn]

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.

Well, apart from the ones who died The National Cull of sick and elderly, making way for young and vigorous growth??

Biggest beneficiaries of the "mitigation measures", not "least affected by Covid". (Not that I endorse the proposed measure of how it should be paid for).

[monabri]

And yet we spend on Foreign Aid...£13 + billion per year...there's a big chunk of change over , say, 10 years.

https://fullfact.org/economy/uk-spending-foreign-aid/

[Arborbridge]

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

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.

[Wizard]

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.