Tax and brain drain

[Urbandreamer]

JohnB made the following comment,

Apart from main personal allowance, all the others have been squeezed away. Capital gains from 12000ish to 3000, dividends from 5000 to 500. They seem to be added for political reasons as sugar pills to cover policies intended long term to increase taxationm but at the corners of tax policy. Only the headline personal allowance tends to rise.

Here
viewtopic.php?p=610542#p610542

A response there would very much drag that thread off topic for the board, but it deserves response and discussion.
I felt this board appropriate so here is my response about the tax system.

It's a ideological policy. Only labor (paid work) should be encouraged, and that only if you earn less than a certain amount.
Everything else is to be discouraged via the tax system.

Fag's are bad, tax.
Booze, tax.
Sugar, tax.
Wind farms or nuclear, windfall tax.
Being good at what you do or doing valued work, higher rate income tax.
VAT, a tax upon how much business you do. The allowance is based upon turnover. Sure it's charged upon customers, but for your work.

CGT manages to combine tax upon investment and tax upon inflation!

We have been here before. It lead to something known at the time as the "brain drain".
https://www.harriman-house.com/press/full/327/

The top rate of income tax was 83%?and if you were dim enough to invest in British business, creating jobs and enterprise, you paid an extra 15% "unearned income" surtax, taking your tax rate to 98%.

The allocation is slightly different now, but I suspect that we are getting close to those figures, if you add in things like VAT increases and NI increases.

By the time that you add our current taxes up, I suspect that you will find that we are in the same situation, and should expect similar results.

[Lootman]

The big difference between now and the 1960s/1970s brain drain is that back then it was young graduates and professionals who left the UK for more opportunity and lower taxes overseas.

Whereas now it is more likely to be older richer folks who have amassed a great deal of wealth and may be seen as an easy target for a confiscatory government.

So the next drain may be billionaires and multi-millionaires, including our demographic. I was certainly ready to leave if Corbyn had become PM as I felt like I would have a huge target on my back.

And if all the very rich drain away, then who is left holding the bag?

[Urbandreamer]

The big difference between now and the 1960s/1970s brain drain is that back then it was young graduates and professionals who left the UK for more opportunity and lower taxes overseas.

Whereas now it is more likely to be older richer folks who have amassed a great deal of wealth and may be seen as an easy target for a confiscatory government.

I can't find any statistics to either dispute or accept your statement. Can you provide any?

Now if we are talking stories, Mr Farage, more noted for his opinions on immigration, recently commented about talking to a finance graduate who was debating Emigrating. Most of us have also seen comments upon the national news of people in the medical profession leaving.

https://www.channel4.com/news/factcheck ... ay-compare

A 2022 BMA survey of 4,553 junior doctors found that four in 10 doctors surveyed said they plan to leave the NHS as soon as they can find another job. A third of respondents said they planned to work as doctors in another country in the next 12 months.

Data from the latest General Medical Council workforce report published in 2022 shows that a total of 4,843 doctors left the UK to work abroad between May 2021 and May 2022.

[Lootman]

The big difference between now and the 1960s/1970s brain drain is that back then it was young graduates and professionals who left the UK for more opportunity and lower taxes overseas.

Whereas now it is more likely to be older richer folks who have amassed a great deal of wealth and may be seen as an easy target for a confiscatory government.

I can't find any statistics to either dispute or accept your statement. Can you provide any?

I don't know about statistics but I do recall back at the time of the brain drain it was stated that 25% of new graduates in scientific and technical subjects were leaving the UK. Income taxes at that time of course extended to 83% and 98%.

If we get (even) higher taxes again then it is reasonable to assume that more professionals of all ages may make the move. What I think is different now is that investment income is more reasonably taxed. But there are some who see that as a problem. If things like CGT and dividend tax are made more punitive, then we may see the non-working rich tempted to leave.

I am certainly not the only one in my circle who is willing to leave the UK if taxes continue to go up on non-employment income. Other things to fear are an expansion of who pays NICs and on what types of income, and a rolling back of ISA tax benefits. None of this is helped by cries of "unearned income" and how evil it is.

[BullDog]

What makes the present situation particularly nasty in my opinion are the numerous cliff edges and stealth taxes that litter the tax system now. They render the individual liable to levels of taxation far beyond the headline rates. A few that spring to mind are -

Loss of child benefit
Loss of personal tax allowance
Loss of savings allowance

All triggered by income level above a certain point.

Then there's effectively double taxation of dividends for small company owners.

And student loan repayments.

There's also been significant increases in both versions of national insurance contributions. Anyone on a very modest salary thinking their marginal rate of tax is 20% is kidding themselves.

I'm sure there's much more if you think about it. I really dislike this kind of dishonesty from our politicians.

[Steveam]

We (the relatively) rich enjoy the very privileged quirks of the tax system such as unlimited ISAs (there is a contribution limit but it’s pretty generous), untaxed returns from NS&I, taxation pension benefits, primary residence not subject to CGT, reasonable rates of tax on dividends and interest. For the tax we do pay we get the (underfunded) NHS, and a safe, educated society - a decent bargain to my mind.

For many years I’ve felt the relatively rich have been allowed to make out like bandits. Things have tightened up a bit and I don’t see that as any bad thing.

Best wishes, Steve (no plans to leave but did consider it when we voted Brexit)

[Urbandreamer]

If we get (even) higher taxes again then it is reasonable to assume that more professionals of all ages may make the move. What I think is different now is that investment income is more reasonably taxed. But there are some who see that as a problem. If things like CGT and dividend tax are made more punitive, then we may see the non-working rich tempted to leave.

CGT and it's calculation don't just affect investments. I do actually use bitcoin to buy things, legally. I also have to track my bitcoin buying and what I spend as it is subject to the CGT regime, as I mentioned on the other thread. I literally have to record when I use it to buy a beer. Currently I don't spend enough to need to inform HMRC, but I can see that happening. After all the CGT allowance will have dropped to 1/4 very soon.

[scrumpyjack]

Income taxes at that time of course extended to 83% and 98%.

One year the marginal rate even went over 100% because Denis Healey put on a 10% retrospective surcharge, such was the mess Labour had got us into. and such medicine of course only made things worse.

[Lootman]

For the tax we do pay we get the (underfunded) NHS, and a safe, educated society - a decent bargain to my mind.

Leaving aside the issue of whether the NHS is fit for purpose and viable in its current state, and whether the streets of London are really safe, I think that many people share my view that there are three massive areas of government expenditure that are seemingly impossible to restrain or control:

1) The interest on the ever increasing national debt, made much worse by rising rates.

2) The colossal scale of means-tested welfare entitlements.

3) The cost of absurdly generous inflation-protected public-sector DB pensions.

Until there are serious attempts to rein in those liabilities I have a problem with higher taxes just to kick the can down the road.

[scrumpyjack]

I agree re national debt interest, but the rising rates reflect inflation and it is only inflation that provides any hope of reducing the national debt in real terms. Rates are still well below the rate of inflation.

It was a big mistake to issue so much index linked debt as that does not evaporate with inflation. I think it is over 25% of the national debt?

[Urbandreamer]

For many years I’ve felt the relatively rich have been allowed to make out like bandits. Things have tightened up a bit and I don’t see that as any bad thing.

Interesting choice of phrase.

When asked why he robbed banks Willie Sutton is said to have replied "That's where the money is". I would argue that the bandits in your example are not the "relatively rich" but those who take the money from them.

However currently people do have the option of leaving the country or indeed changing their actions to avoid tax.
For example by retiring.
https://www.bma.org.uk/news-and-opinion ... or-doctors

For years, punitive taxation rules imposed on doctors’ pensions had seen significant numbers of senior doctors being landed with large and unexpected tax bills, and had forced many to consider reducing their hours or even taking early retirement to avoid being financially penalised.

You might regard me as "relatively rich", in that, while always a standard rate income tax payer, I could invest taxed earnings in tax wrappers since the introduction of PEP's.
This means that I can chose to not pay income tax for the next five years, by simply choosing to not have income but living off savings/investments built up over 30 years. Now who was it that worked for that money? Should I now be taxed because I invested rather than spent the money?

Some might say that yes I should be. Now where is my copy of "The road to Serfdom".

[dealtn]

I agree re national debt interest, but the rising rates reflect inflation and it is only inflation that provides any hope of reducing the national debt in real terms. Rates are still well below the rate of inflation.

It was a big mistake to issue so much index linked debt as that does not evaporate with inflation. I think it is over 25% of the national debt?

As one of the few people alive to have set up a GEMM I think I can justifiably make a claim to understand the Gilt market better than most. That argument can only be considered to be true after taking into account the additional interest burden and opportunity cost of not issuing index linked gilts. The government massively benefitted from issuing paper at above par and at negative real yields over many years. Even now the positive real yields are very low. If the investment return exceeds that of the running interest cost, including the inflation uplift, that is a lot different to it being a big mistake.

[Charlottesquare]

The big difference between now and the 1960s/1970s brain drain is that back then it was young graduates and professionals who left the UK for more opportunity and lower taxes overseas.

Whereas now it is more likely to be older richer folks who have amassed a great deal of wealth and may be seen as an easy target for a confiscatory government.

I can't find any statistics to either dispute or accept your statement. Can you provide any?

Now if we are talking stories, Mr Farage, more noted for his opinions on immigration, recently commented about talking to a finance graduate who was debating Emigrating. Most of us have also seen comments upon the national news of people in the medical profession leaving.

https://www.channel4.com/news/factcheck ... ay-compare

A 2022 BMA survey of 4,553 junior doctors found that four in 10 doctors surveyed said they plan to leave the NHS as soon as they can find another job. A third of respondents said they planned to work as doctors in another country in the next 12 months.

Data from the latest General Medical Council workforce report published in 2022 shows that a total of 4,843 doctors left the UK to work abroad between May 2021 and May 2022.

My niece is one of those doctors, she has settled in Australia, married an Australian and we do not expect her return- better working conditions than dealing with all the knife wounds etc in a busy A & E where she did work when in the NHS.

[Nimrod103]

I agree re national debt interest, but the rising rates reflect inflation and it is only inflation that provides any hope of reducing the national debt in real terms. Rates are still well below the rate of inflation.

It was a big mistake to issue so much index linked debt as that does not evaporate with inflation. I think it is over 25% of the national debt?

You are suggesting that the country should have borrowed to the hilt at long dated fixed low interest rates, while adopting inflationary policies. In other words defrauding one's creditors by debasing the currency. Seems immoral to me.

[Charlottesquare]

I can't find any statistics to either dispute or accept your statement. Can you provide any?

I don't know about statistics but I do recall back at the time of the brain drain it was stated that 25% of new graduates in scientific and technical subjects were leaving the UK. Income taxes at that time of course extended to 83% and 98%.

If we get (even) higher taxes again then it is reasonable to assume that more professionals of all ages may make the move. What I think is different now is that investment income is more reasonably taxed. But there are some who see that as a problem. If things like CGT and dividend tax are made more punitive, then we may see the non-working rich tempted to leave.

I am certainly not the only one in my circle who is willing to leave the UK if taxes continue to go up on non-employment income. Other things to fear are an expansion of who pays NICs and on what types of income, and a rolling back of ISA tax benefits. None of this is helped by cries of "unearned income" and how evil it is.

If investments by these non working rich are say in secondary market shares then not sure how much of a tax loss they will actually be, their investments really do not spur on UK plc they merely transfer cash from a buyer of shares to a seller of shares, yes equity liquidity is important, we need it to have a market, but most of that comes from financial institutions rather than individuals.

Yes, maybe some higher rate taxes on dividends lost, most will manage their gains and losses of unsheltered shares and a fair few will have the lot within ISAs etc. Yes, maybe IHT losses later, but then if they leave no need to invest as much in the NHS, lower demand, in fact chasing out the elderly who have money might be a winner long term for government finances.

(Not as good as my solution, free drink and drugs to pensioners and the resulting far lower care home costs)

[Lootman]

I don't know about statistics but I do recall back at the time of the brain drain it was stated that 25% of new graduates in scientific and technical subjects were leaving the UK. Income taxes at that time of course extended to 83% and 98%.

If we get (even) higher taxes again then it is reasonable to assume that more professionals of all ages may make the move. What I think is different now is that investment income is more reasonably taxed. But there are some who see that as a problem. If things like CGT and dividend tax are made more punitive, then we may see the non-working rich tempted to leave.

I am certainly not the only one in my circle who is willing to leave the UK if taxes continue to go up on non-employment income. Other things to fear are an expansion of who pays NICs and on what types of income, and a rolling back of ISA tax benefits. None of this is helped by cries of "unearned income" and how evil it is.

If investments by these non working rich are say in secondary market shares then not sure how much of a tax loss they will actually be, their investments really do not spur on UK plc they merely transfer cash from a buyer of shares to a seller of shares, yes equity liquidity is important, we need it to have a market, but most of that comes from financial institutions rather than individuals.

Yes, maybe some higher rate taxes on dividends lost, most will manage their gains and losses of unsheltered shares and a fair few will have the lot within ISAs etc. Yes, maybe IHT losses later, but then if they leave no need to invest as much in the NHS, lower demand, in fact chasing out the elderly who have money might be a winner long term for government finances.

(Not as good as my solution, free drink and drugs to pensioners and the resulting far lower care home costs)

Yes but it is not hard to come up with a nightmare cocktail of tax increases by a left-wing government in the future:

1) Equalisation of tax rates on earned and investment income, so up to 45% (or more) on dividends and capital gains
2) Imposition of NICs on all forms of income, and on the over 65s. And/or merging of NICs and income tax at rates of 60% or more, with no cap.
3) Capping of the tax benefits of ISAs
4) Some form of annual wealth tax
5) Closing the loopholes of IHT e.g. AIM shares, and longer durations for PETs

Couple that with the kind of exchange controls that John McDonnell apparently thought would be necessary and we are back to the 1970s for wealth creators and risk takers.

[scrumpyjack]

I agree re national debt interest, but the rising rates reflect inflation and it is only inflation that provides any hope of reducing the national debt in real terms. Rates are still well below the rate of inflation.

It was a big mistake to issue so much index linked debt as that does not evaporate with inflation. I think it is over 25% of the national debt?

You are suggesting that the country should have borrowed to the hilt at long dated fixed low interest rates, while adopting inflationary policies. In other words defrauding one's creditors by debasing the currency. Seems immoral to me.

It's what we've always done before

That's what paid off our WW2 debt. It would not have been possible any other way.
Of course the moral of the story is - do not buy British Government debt!

[Urbandreamer]

If investments by these non working rich are say in secondary market shares then not sure how much of a tax loss they will actually be, their investments really do not spur on UK plc they merely transfer cash from a buyer of shares to a seller of shares, yes equity liquidity is important, we need it to have a market, but most of that comes from financial institutions rather than individuals.

FWIW I have subscribed to both the primary and secondary market in my time, as well as rights issues. Indeed, in addition to the state, it was the likes of me who kept RBS afloat.

I also owned ARM from the early days until it was sold to Softbank. Where is to listing now?

Oh for those who don't know the history, ARM was part of Acorn originally. A Cambridge University startup supported by the state in it's very early days. Now they are responsible for the main chip on most mobile phones.

I'm afraid that your statement presumes that new companies are never born, nor that existing companies need further investment.

I confess that I feel somewhat betrayed by our state over the open offer I subscribed to with the IT "Trig". The funds were used to build wind farms, which the state later slapped a "windfall tax" upon. I won't be investing in any further UK renewable energy and note that trig is disposing of UK assets.

[1nvest]

You are suggesting that the country should have borrowed to the hilt at long dated fixed low interest rates, while adopting inflationary policies. In other words defrauding one's creditors by debasing the currency. Seems immoral to me.

It's what we've always done before

That's what paid off our WW2 debt. It would not have been possible any other way.
Of course the moral of the story is - do not buy British Government debt!

£2.6Tn debt, near the same as GDP ... shocking! Last year the interest cost £111Bn ... ouch!

But largely smoke and mirrors. £740Bn is held by the BoE who print money to buy Gilts and return the interest the Treasury pays on those Gilts, back to the Treasury.

Internal debt, held by UK individuals/pensions funds etc, ... is just a accounting matter, a redistribution factor. It's foreign holders of UK Gilts that sees a real out-flow. Internally and taxes and/or inflation (which is just another form of taxation) can deal with large 'debts'. Japan for instance largely does that, what the Treasury needs to borrow the Bank of Japan 'lends'.

So last year debt interest cost around 4% and where around only a third of the debt is foreign owned, of the order £850Bn debt x 4% interest = £34Bn cost. But the UK also holds foreign investments/assets of its own, if they totalled £850Bn also and received a 4% interest rate, then ... the debt is just paperwork accounting.

What matters is deficit. One way to alleviate that might be for the Treasury to borrow even more from the BoE, and invest that, or buy back Gilts from foreign holders of Gilts. Following recent large declines in bond prices, it would be a reasonable time to be doing that.

Yes inflation is taxation 'defrauds' creditors, happens to a larger extent periodically, avoids what otherwise might be considered a actual default - that are to be avoided at all cost. Presently combined inflation + taxation are high. Nice thing about Gilts is that those who lend do so on the conditions that the borrower (UK) gets to set the terms and conditions, can revise the rules, taxation or via inflation (another form of taxation).

Seen in the light of the UK having £850Bn of foreign holders of UK debt, along with the same (or more) of the UK holding foreign debts/assets yielding the same or more in interest, and the UK is well positioned. Much of political talk around inflation is just justification of what might alternatively be called very high taxation, that will come to pass. What creditors lose over one period tends to be offset by gains over other periods.

The main concern is deficit. https://www.ons.gov.uk/economy/governme ... tember2021 indicates fiscal 2020/21 deficit of £320Bn, up from £25Bn in 2018/19. Mostly down to Covid. Since then ... https://www.ons.gov.uk/economy/governme ... nt-deficit



If deficit, difference between what the state collects and what it pays out, is permitted to become too large for too long and then the debt expansion can become a problem. But that seems now to be under control, within 'more normal' type levels.

What the UK needs is for the current Civil Servants to be replaced by those willing to push forward Brexit advantages rather than hinder it in some form of hope to 'get back in again'. As-is the finances are well positioned and there are some really great potentials for the UK.

[1nvest]

I confess that I feel somewhat betrayed by our state over the open offer I subscribed to with the IT "Trig". The funds were used to build wind farms, which the state later slapped a "windfall tax" upon. I won't be investing in any further UK renewable energy and note that trig is disposing of UK assets.

That's backstabber Sunak for you. Yes the UK should be making big pushes into greater self sufficiencies on the food and energy fronts. Sunak and his recent oil ventures/associations however along with hitting wind is a clear indication of where his real loyalties lay. The quicker we're rid-off the better.