The Lemon Fool

I think there will be some extra taxes coming. Partly cause capital gains tax receipts will be down as the uk stock market is down. I doubt the Tories will bring in a wealth tax but expect capital gains to be less generous.

This is a window to be planning and tax efficient saving up until May 2024, as my guess is labour will get in. Between now and then I think is the time to maximise isa and sipp contributions for yourself, spouse and children, and gifts to children and grandchildren if that's your thing.

For those interested I'm not new here was on as fca2019 but re-registered as more friendly to have real name. Cheers Adam

Adamski wrote:I think there will be some extra taxes coming. Partly cause capital gains tax receipts will be down as the uk stock market is down. I doubt the Tories will bring in a wealth tax but expect capital gains to be less generous.

This is a window to be planning and tax efficient saving up until May 2024, as my guess is labour will get in. Between now and then I think is the time to maximise isa and sipp contributions for yourself, spouse and children, and gifts to children and grandchildren if that's your thing.

Like you I was greatly relieved when Boris won last December (or more accurately, that Corbyn lost). Because it gave me a five year window to rain-proof my portfolio and insure it against a future punitive and confiscatory government.

But that was before the virus blew a hole in the nation's finances, and to a lesser extent, the markets. I do not personally believe any politician who claims that taxes need to go up. We could just borrow more given the ridiculously low borrowing rates the government enjoys. But politicians secretly love to have more money, even the Tories. And so they will use the crisis as a convenient rationalisation to ding us with a medley of miserly tax increases or, worse, new taxes.

CGT is an obvious one because "only rich people pay it, innit?" I had planned to sell everything before 2024 in a phased approach. Now I might dump the lot this tax year. Even if the virus was fixed tomorrow and the economy roared back, the politicians always want more.

So yes, max out ISAs. I always have. But then who is to say that a 2024 Starmer government won't target ISAs? To a redistributionist politician someone having a million sheltered from tax is going to be an irresistable target. Those rich peoples' lives don't matter, right? Maybe a wealth tax. Or abolish ISAs. Maybe an annual ISA levy. Or in the end 40% IHT.

So I think longer term we will need more than ISAs and SIPPS to protect us. It is captive money and that which the government gives you with one hand, it can take away with the other. Going forward, mobility of wealth might be the key rather than "generous" government-controlled tax shelters.

Lootman wrote:Like you I was greatly relieved when Boris won last December (or more accurately, that Corbyn lost). Because it gave me a five year window to rain-proof my portfolio and insure it against a future punitive and confiscatory government.

Aside from shipping everything that is mobile abroad (can't move the house and the dc pension is a sitting duck) I'm not too sure what to do.

Lootman wrote:So I think longer term we will need more than ISAs and SIPPS to protect us. It is captive money and that which the government gives you with one hand, it can take away with the other. Going forward, mobility of wealth might be the key rather than "generous" government-controlled tax shelters.

Indeed. Eventually the other lot will get in and any money that can flee will, leaving sipp and ISAs the big targets because public sector pensions escape the net.

Lootman wrote:[Lastly any move to tax gains like income would lead to a massive dumping of shares and property to enjoy the current maximum 20% CGT rates. ...

Late to this topic but the current maximum CGT rate is 28%.

https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances#rate-gain

Not that it will make much difference to your overall point but that might be a starting point for chargeable residential gains (as it is now) if the scope is enhanced.

PinkDalek wrote:

Lootman wrote:[Lastly any move to tax gains like income would lead to a massive dumping of shares and property to enjoy the current maximum 20% CGT rates. ...

Late to this topic but the current maximum CGT rate is 28%.

https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances#rate-gain

Not that it will make much difference to your overall point but that might be a starting point for chargeable residential gains (as it is now) if the scope is enhanced.

Yes, I had forgotten about the 28% rate. In my case the liability is only for shares, so 20% is the rate that is relevant. As taxes go I don't think that is too bad.

One thing the government may consider is adopting the US approach. The US divides gains into short-term and long-term, the threshold being one year. Short-term gains are taxed as ordinary income, whereas long-term gains are taxed at either 15% or 20% depending on your total annual income. There is no annual CGT-free allowance there, and no indexation. Most States tax capital gains as well so overall the US system is more punitive, but I could live with it.

There's been some talk of wealth taxes recently in the financial press.

The shadow chancellor Anneliese Dodds has urged the Government to look at a wealth tax to help fill the covid budget black hole and to pay toward the 80% of the wages of the 9 mill furloughed.

4 EU countries have a wealth tax. The Spanish wealth tax kicks in at 700k euros. Included homes and investments, interestingly excludes pensions. Know the French tried it and gave up as 10,000 wealthy people left, taking jobs with them (no surprise).

My guess is Rishi might be thinking about it but won't do it. My guess is Labour are likely to get in next time, and a wealth tax is incoming from a May 2024 Labour govt. I guess the threshold will have to be quite high to avoid the French experience.

In terms of planning I think maximising pensions should be a priority as politically more difficult to tax them.

Buying some luxury assets (art, antiques) could be an option, how will HMRC know what your house contents are? i guess from the insurers?

Would an offshore bank account be excluded as well? Would an isle of man bank count?

Gifting could be an option, bringing forward lifetime gifts to children or grandchildren, as this would divide the assets between family members and reduce or poss. remove the need to pay a wealth tax?

I think taking some action between now and 2024 is required, but in my case is what I'm already doing which is trying to maximise pensions and tax relief for myself and wife.

Would have thought the Dodds, Starmer combo as "new" Labour would be bright enough to realise when they do this entrepreneurs and wealth creators will flea the country taking jobs and taxes with them. So you'd like to think they'd tread lightly with this in practice?

One could argue that IHT (and it's cousin CGT) are wealth taxes. Merryn Somerset-Webb argues this is the FT this weekend - I'm not able to link but I'm sure someone will come by and help

Some changes to the IHT & CGT regimes, some tightening-up of the rules, better enforcement and fewer escape routes/allowances together might raise quite a lot without scaring the horses. MS-W argues that this will still be insufficient (few people pay either of these taxes) adjustments will need to be made to broaden the "wealth" tax base. This could be done by, for example, including residential property in the CGT regime at some modest rate - so buyers pay stamp duty and sellers start paying CGT.

The Chancellor has initiated a review of the CGT regime which I think is likely to align the rates with income.

Best wishes,

Steve

Adamski wrote:There's been some talk of wealth taxes recently in the financial press.

The shadow chancellor Anneliese Dodds has urged the Government to look at a wealth tax to help fill the covid budget black hole and to pay toward the 80% of the wages of the 9 mill furloughed.

4 EU countries have a wealth tax. The Spanish wealth tax kicks in at 700k euros. Included homes and investments, interestingly excludes pensions. Know the French tried it and gave up as 10,000 wealthy people left, taking jobs with them (no surprise).

My guess is Rishi might be thinking about it but won't do it. My guess is Labour are likely to get in next time, and a wealth tax is incoming from a May 2024 Labour govt. I guess the threshold will have to be quite high to avoid the French experience.

In terms of planning I think maximising pensions should be a priority as politically more difficult to tax them.

Buying some luxury assets (art, antiques) could be an option, how will HMRC know what your house contents are? i guess from the insurers?

Would an offshore bank account be excluded as well? Would an isle of man bank count?

Gifting could be an option, bringing forward lifetime gifts to children or grandchildren, as this would divide the assets between family members and reduce or poss. remove the need to pay a wealth tax?

I think taking some action between now and 2024 is required, but in my case is what I'm already doing which is trying to maximise pensions and tax relief for myself and wife.

Would have thought the Dodds, Starmer combo as "new" Labour would be bright enough to realise when they do this entrepreneurs and wealth creators will flea the country taking jobs and taxes with them. So you'd like to think they'd tread lightly with this in practice?

Gifting might be closed off as an option since Labour were certainly looking at the option of taxing lifetime gifts as part of their reforms to IHT and the Conservatives might well pinch that idea. Although Labour gets tarred as the high tax party in reality both parties are as bad as each other especially if they are in a financial crisis - remember for instance it was Labour who in the A-Day pension reforms provided an annual allowance of £215,000 (rising to £255,000) and Lifetime allowance of £1.5 million (rising to £1.8 million). And it was the Coalition and Conservatives who reduced the Annual allowance to its current £40,000 and reduced the Lifetime allowance down to £1million (now £1,073,100).

Steveam wrote:One could argue that IHT (and it's cousin CGT) are wealth taxes. Merryn Somerset-Webb argues this is the FT this weekend - I'm not able to link but I'm sure someone will come by and help

Links directly into the FT only work for those with a subscription. For those that do the article is at https://www.ft.com/content/6f54dae9-277 ... a4ba49b0d7.

Those that don't can Google CGT is a stealth wealth tax and click on the result.

Her argument is tosh. Firstly, she's bending definitions as a wealth tax is one that is levied simply on the level (amount) of one's wealth, not a change in it (gain) or as a result of or on any transaction, as CGT is.

Secondly, her argument is based on the lack of indexation, that as CGT is charged on nominal gains (rather than the real, inflation adjusted, gains) you could end up paying CGT on a real loss (or the CGT pushing you into a real loss).

While that's true it also applies to interest from bank accounts, etc; if your savings a/c is giving you 2% interest and inflation is 2% and you are being taxed on the interest then you end up with a real loss. And if you're only getting 1% interest and inflation is 2% it's even worse as you're starting off with a real loss but still (potentially) liable for tax on the 1% interest.

But that's not a wealth tax as commonly defined or used -- and of course it doesn't help that what the UK calls inheritance tax isn't actually an inheritance tax but rather an estate tax. It is levied on the level of the estate and paid by the estate. A (proper) inheritance tax is levied on and paid by the beneficiary, often treating the amount inherited similarly to income (e.g. taxed at the recipients' marginal rates).

IHT (as we call it) is a wealth tax, CGT is not (and is not IHT's "cousin"). There is one other wealth tax in the UK that pretty much everyone pays, and that's council tax, which is (loosely) based on the value of your home. For owner-occupiers that's a plain wealth tax. For renters it's a tax on their landlord's wealth.....

mc2fool wrote: For owner-occupiers that's a plain wealth tax.

There used to be a tax on owner occupiers calculated as a tax on the notional rent they saved by owning their own house. Given there was also tax relief on mortgage interest, it was perhaps a tax only on those wealthy enough, or perhaps old enough to own their property mortgage free. It was abolished in 1963.

ursaminortaur wrote:

Adamski wrote:Gifting could be an option, bringing forward lifetime gifts to children or grandchildren, as this would divide the assets between family members and reduce or poss. remove the need to pay a wealth tax?

Gifting might be closed off as an option since Labour were certainly looking at the option of taxing lifetime gifts as part of their reforms to IHT and the Conservatives might well pinch that idea.

I'm not sure how that would work, for two reasons:

1) The first problem is what can happen now. A makes a large gift to B, then dies before 7 years is up. A's estate is empty so the taxman tries to go after B for the inheritance tax due. But B has either spent it or else cannot be found or compelled to pay the tax. Without probate locking up assets it is much harder for IHT and any gifts to be determined, let alone collected.

2) Even if there were a "gift tax" payable at the time of the gift, it would not be hard to make a gift in a way such that there is no paper trail or other evidence of the transfer. It could be cash or in the form of diamonds or any other anonymous and portable asset.

I really can’t see a conservative government going down this route (wealth or gift tax). Any new tax is incredibly difficult to set up and anyway they want to encourage wealth creation, not throttle it.

Far more likely IMO are

Further taxes to discourage high pension contributions. This ‘costs’ the Treasury a huge amount. There need to be incentives for pension savings so that people are not a burden on the state in retirement but that does not need to go beyond provision of a basic pension and certainly does not need to give unlimited 25% tax free lump sums. That could reasonably be limited to 100k at most.

Reduce the disparity between tax on employment and tax on self employment. Rishi flagged that already when he gave furlough payments to the self employed.

Abolish the AIM companies IHT break. No reason to keep it.

Limit business property relief substantially. No reason that the very rich should escape IHT simply because they have invested in farmland or built up a company which will carry on perfectly well in spite of IHT on founding shareholders estates.

I’m sure there are other things such as the above he can do without opening the Pandoras box of further wealth taxes.

Anyway, if Covid is a once in one hundred years event, there is no need to pay back the borrowings over a short timescale. The above would be sufficient to establish a path to get things back on track in the longer term.

scrumpyjack wrote:Abolish the AIM companies IHT break. No reason to keep it.

I struggle to believe that would earn much for the government. Only 5% of estates pay IHT and of those I can't imagine many have huge AIM portfolios because of the risk. I actually run a portfolio of qualifying AIM shares for IHT mitigation but, even so, it's only about 5% of my portfolio value. I cannot stomach having more than that at risk. Already one of them has gone to zero and a couple more have lost more than 50%. I have a couple of runaway winners as well, but it's really a mixed bag at best.

If the exemption was abolished I'd expect AIM shares to decline significantly in price as the exemption is a considerable motivation to hold them in the first place. And they are impossible to hedge.

In reality the only taxes that would raise huge amounts for the government are the most broad-based taxes: VAT and income tax.

scrumpyjack wrote:Far more likely IMO are...

I agree with all your points there. I think those are areas which are more likely to be hit by tax increases now. However I think a wealth tax and gift tax is likely if there is a change to a labour government next time around.

Adamski wrote:

scrumpyjack wrote:Far more likely IMO are...

I agree with all your points there. I think those are areas which are more likely to be hit by tax increases now. However I think a wealth tax and gift tax is likely if there is a change to a labour government next time around.

In that case I feel entirely safe at the moment that I won't be getting hit with either of those taxes.

Of course there is no need for any extra taxes at all. It all pays for itself over time as a natural consequence of the way the system works.

https://new-wayland.com/blog/#Bonds%20Pay%20For%20Themselves

There's no need for internal (UK) taxes at all. Useful to tax external facing as fundamentally its only the deficit that matters. The BoE printing/spending money is a form of micro-taxation, each new note added devalues all other notes, as such much of the excessive tax rule book and collecting/recording systems could all be thrown out of the window - which would promote economics rather than the present system of hindrance. Parliament also is in need of reform, its usually good to periodically cut out all the dead-wood.

Policies whereby £'s can flow to China, whilst China as good as forbids its citizens from buying foreign ... will not ultimately end well. Taxes should target that, and not the situation we're actually in of how far the public sector can excessively drain the private sector (gold plated pensions for many in the public sector, hardship for many in the private sector ..etc.).

1nvest wrote:There's no need for internal (UK) taxes at all. Useful to tax external facing as fundamentally its only the deficit that matters. The BoE printing/spending money is a form of micro-taxation, each new note added devalues all other notes, as such much of the excessive tax rule book and collecting/recording systems could all be thrown out of the window - which would promote economics rather than the present system of hindrance. Parliament also is in need of reform, its usually good to periodically cut out all the dead-wood.

Policies whereby £'s can flow to China, whilst China as good as forbids its citizens from buying foreign ... will not ultimately end well. Taxes should target that, and not the situation we're actually in of how far the public sector can excessively drain the private sector (gold plated pensions for many in the public sector, hardship for many in the private sector ..etc.).

The fact that governments require their citizens to pay their taxes in the currency that they issue is the only reason that those currencies are accepted as having value. If government stopped all UK taxation but kept creating money so that it could continue spending then because of how much the government spends you would end up with hyperinflation in that currency and since the citizens didn't need it to pay taxes they would switch to using a more stable currency.

ursaminortaur wrote:

1nvest wrote:There's no need for internal (UK) taxes at all. Useful to tax external facing as fundamentally its only the deficit that matters. The BoE printing/spending money is a form of micro-taxation, each new note added devalues all other notes, as such much of the excessive tax rule book and collecting/recording systems could all be thrown out of the window - which would promote economics rather than the present system of hindrance. Parliament also is in need of reform, its usually good to periodically cut out all the dead-wood.

Policies whereby £'s can flow to China, whilst China as good as forbids its citizens from buying foreign ... will not ultimately end well. Taxes should target that, and not the situation we're actually in of how far the public sector can excessively drain the private sector (gold plated pensions for many in the public sector, hardship for many in the private sector ..etc.).

The fact that governments require their citizens to pay their taxes in the currency that they issue is the only reason that those currencies are accepted as having value. If government stopped all UK taxation but kept creating money so that it could continue spending then because of how much the government spends you would end up with hyperinflation in that currency and since the citizens didn't need it to pay taxes they would switch to using a more stable currency.

Yes taxation is a form of destruction of some of the money printed. Without such destruction indeed inflation would rage into hyperinflation. However if the state takes part ownership of businesses operating within its realm i.e. buys stocks, then it receives revenues from those businesses. Similar destruction of previously printed money. Whilst also gaining influence in what/how businesses operate, in some cases perhaps a controlling influence (majority shareholder). That also directs government to work for the benefit of both the citizens and businesses. From a foreign perspective, sales taxes and dividend withholding taxes could be utilised. So for instance a large outfit/firm that was selling into the UK but otherwise paying no taxes into the UK treasuries coffers would still albeit indirectly be contributing; As would foreign holders of UK based businesses be paying via dividend withholding taxation.

£600Bn of taxes collected under the current arrangement.
Around £8Tn of UK assets value held by foreign, say paying 4% dividend/benefit, £320Bn, presently with 0% withholding tax, being revised to withholding 30% (as per the US). £100Bn of replacement revenue.
Foreign sales into the UK, £500Bn, 20% tax, £100Bn of revenue.
£4Tn UK stock market cap value, doubles as money is printed to buy up half of all shares. £8Tn market cap, lower dividends, half of dividends going to the treasury. Maybe another £100Bn.
In not paying taxes wages/costs/prices decline significantly. Such that former £600Bn of tax collections (and government spending) halve, and where withholding taxes, import tax and business share earnings are covering the £300Bn of money destruction.

In UK wages and cost of living having declined, foreign would be more attracted to employ/buy British, whilst UK standards of living would be much the same as before, other than it being cheaper to buy British stuff over buying foreign stuff. To dissuade that other foreign governments might impose withholding taxes - however they already do! The UK is one of the exceptions rather than the rule in that respect. They might strive to block their citizens from buying British products - but they already do, and none more so than China. The UK has been a gift horse for too long and at great cost to its economy and people. It should be looking to level up. For the UK the EU has been a disaster, but our cost has been their gain. UK assets have flowed out, whilst prior relatively poor EU countries have been raised up to the same/higher levels, at our expense.

NeilW wrote:Of course there is no need for any extra taxes at all. It all pays for itself over time as a natural consequence of the way the system works.

https://new-wayland.com/blog/#Bonds%20Pay%20For%20Themselves

Do you not think that you owe it to the IFS to let them know where they have got it wrong......and while you are at it let the Chancellor know as well?

Dod