Budget 2016

[DynamicSpirit]

Wealth != income.

Who is richer, a millionaire on £15k a year, or someone on £25k with no assets?

This would be a wealth tax, far fairer than a productivity tax.

That's questionable. As I see it, the problem with any wealth tax, is that you can't own wealth without at some point having acquired that wealth in some way. And that means that - provided the tax system is working properly - you would have probably already paid the tax at the point where you gained the wealth (or in some cases, such as 2nd homes, the point where you dispose of it) - whether in the form of income tax, capital gains tax, tax on dividends, etc. So if (and I know it's a big if) all income is taxed properly, any tax on wealth would end up being a double tax - paying tax again on something that you've already paid tax for. Personally, I'd rather see efforts focused on making sure that all income is taxed appropriately (Example: Reversing Osborne's recent extraordinary cuts in capital gains tax rates).
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Wealth beggars wealth. 20 somethings paying over £200k to rent between leaving education and buying a 1 bed flat aged 34 are feeding the wealthy with their income. Those in the 10% who can get interest free loans or gifts from the bank of mum and dad avoid this £200k tax, leading to widening inequality.

But remember that (a) if the landlords make a profit by renting out the properties, then that profit is already taxed, (b) if children receive loans or gifts from their parents, then that money is presumably the result of the parents having earned it at some point in the past, in which case they will already have paid tax on it, (c) the landlords will need to pay capital gains tax if they subsequently sell their properties at a profit.

I don't deny that the way many people are forced into renting for long periods is unfair, and it has resulted in increasing inequality - but I still maintain that the solution to that is to build more homes, not to tweak the tax system in a way that is itself arguably unfair (but which you hope cancels out the unfairness associated by too many people owning buy-to-let properties).

 

[pemma]

Who is richer, a millionaire on £15k a year, or someone on £25k with no assets?

Is that a £15k salary on top of any savings interest/return on investment or £15k savings interest? If it's the former than they can easily earn £30k or more in total by the time they get interest on their savings/a return on investments they have made.

 

[LateThanNever]

That's questionable. As I see it, the problem with any wealth tax, is that you can't own wealth without at some point having acquired that wealth in some way. And that means that - provided the tax system is working properly - you would have probably already paid the tax at the point where you gained the wealth (or in some cases, such as 2nd homes, the point where you dispose of it) - whether in the form of income tax, capital gains tax, tax on dividends, etc. So if (and I know it's a big if) all income is taxed properly, any tax on wealth would end up being a double tax - paying tax again on something that you've already paid tax for. Personally, I'd rather see efforts focused on making sure that all income is taxed appropriately (Example: Reversing Osborne's recent extraordinary cuts in capital gains tax rates).
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But remember that (a) if the landlords make a profit by renting out the properties, then that profit is already taxed, (b) if children receive loans or gifts from their parents, then that money is presumably the result of the parents having earned it at some point in the past, in which case they will already have paid tax on it, (c) the landlords will need to pay capital gains tax if they subsequently sell their properties at a profit.

I don't deny that the way many people are forced into renting for long periods is unfair, and it has resulted in increasing inequality - but I still maintain that the solution to that is to build more homes, not to tweak the tax system in a way that is itself arguably unfair (but which you hope cancels out the unfairness associated by too many people owning buy-to-let properties).

Agree that much of the system is crazy but you might have acquired wealth/land by being a friend of William the Conqueror. It is a long time ago but we have to be fair now... Surely capital gains should be taxed just the same as income. Currently it's less. Why FGS?

 

[miami]

That's questionable. As I see it, the problem with any wealth tax, is that you can't own wealth without at some point having acquired that wealth in some way.

Are you saying that a retired millionaire is poorer than a just-graduated student with a job at costa coffee? That's the question I asked.

However to answer your point, if you buy a house instead of rent, you make a massive amount of untaxed unearned income.

Personally, I'd rather see efforts focused on making sure that all income is taxed appropriately (Example: Reversing Osborne's recent extraordinary cuts in capital gains tax rates).

And adding capital gains to all property? Lumping it in with income tax too, and averaging the gains over a period. Buy your house in Nov 99 for £187,500. Pay 40% tax, retire in March 2011 aged 57, take a few odd jobs to keep you going at £7k a year (or whatever the personal alowance was).

Sell the house in Jan 2012 for £442,500, netting £255k over 12 years, or £21k a year.

If that had been taxed as income (which would be fair), it would attract 11 years at 40% and 1 year at 20%, or £96,600.

Instead it's exempt from CGT. Even if it weren't it would be taxed at 18%, or £46k - £50k more than it would have been taxed if it was income over that time period.

But remember that (a) if the landlords make a profit by renting out the properties, then that profit is already taxed, (b) if children receive loans or gifts from their parents, then that money is presumably the result of the parents having earned it at some point in the past, in which case they will already have paid tax on it, (c) the landlords will need to pay capital gains tax if they subsequently sell their properties at a profit.

The problem isn't landlords owning multiple properties (which are taxed, although not at the right level congruous with wealth or indeed income), it's the massive increase in value of people's main properties that has lead to a large wealth inequality. There should at the very least be a windfall tax on this profit used to tackle the massive problem that generation rent have.

Blaming a lack of house building doesn't work either -- clearly there are enough houses, as the number of people homeless through lack of buildings hasn't really changed, and there's 700k (and rising) empty homes in the UK. House prices have shot up because
* People borrowed more than they normally would, meaning more money to spend on the same houses, meaning all house prices rise
* People didn't stop working when they had kids, instead relying on government subsidies to pay for the kids to go to nursery before maternity leave finished, leaving two earners to pay the mortgage, allowing larger mortgages, allowing prices to rise
* Buy to let people buying up more and more houses
* Job concentration in large cities meaning increasing rents, so increasing profit, so more incentive for those with money to buy more houses
* Parents using unearned equity in houses to gift massive deposits to children

Then since 2008
* Interest rates being low meaning people are happier taking out large mortgages
* Government schemes like help to buy inflating house prices

As for taxing money a second time, especially when given away as a gift (or inheritence):

Money is taxed multiple times constantly. Lets say I'm a train driver with 2 kids, work a day's overtime which costs the company £1000. Pay 65% tax on it, and I gets £350. I then spend the money on a new vacuum cleaner, I spend £350 on a dyson, of which £60 is VAT. That leaves £290, which is split various ways, wages of the people selling (the salesman was on commission and got £30, which was taxed at the basic rate of 32%, so he gets £20. That leaves £260.

£20 is spent on the rent/power/business costs/etc of the store. Half of the remaining £240 goes to the wages of people making the hoover (£120 - another £40 taken by tax), and the other £120 goes to James Dyson (CGT so taxed as 28% - that's before Osborne's cuts)

So in that simple transaction of train driver working a few days overtime to buy a new hoover, the money goes:

Virgin trains spend £1000 for this overtime
Taxes: £800
Rent/Power/business costs/etc: £20
Money in pockets of workers: £20 (sales) + £80 (producers)
Money in pockets of owner: £85

Of the amounts people earn, it's the multi-millionaire James Dyson that keeps the biggest part of the pie (72% - 80% post 2016 budget), the people making and selling the hoover keep 68%, and the rail driver who earns £51k basic keeps the least (35%).

80% of that £1000 overtime day goes in taxes before it touches anyone else's bank account. It was massivly taxed at the start, why should it be taxed when it goes to the next person in the chain? Or if it should, why shouldn't it be taxed when passed to children? A 100% inheritence tax would encourage older people to actually spend their wealth during their lifetimes, pumping money into the economy, and raising the living standards of the elderly.

I don't deny that the way many people are forced into renting for long periods is unfair, and it has resulted in increasing inequality - but I still maintain that the solution to that is to build more homes, not to tweak the tax system in a way that is itself arguably unfair (but which you hope cancels out the unfairness associated by too many people owning buy-to-let properties).

Why is it fair if you make £300k profit by buying a house in 2000 for £100k and selling in 2016 for £400k, and pay nothing in tax?

Why is it fair if Dyson pays you a bonus as a top designer to make a vacuum, you end up with marginal tax rates in the 40-65% range, while the owner of the company used to pay 28% and now pays 20%?

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Is that a £15k salary on top of any savings interest/return on investment or £15k savings interest? If it's the former than they can easily earn £30k or more in total by the time they get interest on their savings/a return on investments they have made.

I imagine many millionaires have their money in their own home, which they are unlikely to be monetising. We see sob stories about rich pensioners being forced to pay their bills

http://www.express.co.uk/news/uk/42...rs-are-forced-to-sell-home-to-fund-their-care

MORE than one million homes have been sold by pensioners to pay for the soaring cost of care, a study has found.
...
And another two million elderly people have had to use their savings to pay care costs.
...
The bills devour savings and assets, leaving nothing from a lifetime of hard work to pass on to children and grandchildren.

:roll:

 

[DarloRich]

So then Paul lets hear your solution. You have picked apart others ideas, what would you do?

 

[miami]

So then Paul lets hear your solution. You have picked apart others ideas, what would you do?

1) Drop the 52% tax on gross income for people earning £50-60K
2) Treat CGT as income - so 20%/40%/45% depending on total income
3) Capital Gains on personal residences, averaged over the time of ownership, and added to income tax for that period (So £100k owned over 40 years when you paid 20% means £20k). This can be offset when moving to another house (so buy at £100k, sell at £200k, buy a new house for £250k but you carry the £100k profit with you, sell that at £300k and you pay at that point on £150k).
4) Capital Gains losses on the other hand offset against income, so if you buy some shares and lose £10k as a 20% tax payer, you pay
5) Inheritence tax threshold down to £20k (so plenty of money for granny wedding ring), anything above subject to CGT as above, payable immediately, but split over 7 years - so a £320k inheritence split equally to two people would drop to £140k each and then split over 7 years so taxed as £20k per year (so probably taxed around £50k each, leaving £110k each passed on)
6) Council tax revaluation, which also comes with a one off wealth tax of 2% on all house ownership hitting in 48 months time. This will be able to be added to the house as a fee to pay when the house is sold. This gives time for people to sell off excess assets in advance, which will depress house prices.
7) Increased family allowance for pre-school children who do not take up subsidised nursery places
8) Increased family allowance for parents who home school
9) Tax breaks for companies who do not have offices in large cities (list tbc, but London, Manchester, Birmingham etc)
10) Pooling tax free allowances for any couple in a marriage or civil partnership, so two people with 1 earner and 1 as a carer for an elderly relative for example would pool both the £10k tax free (making the wage earning tax free until £20k), but also the income bands (making the wage earner 20% until about £90k)

 

[pemma]

1) Drop the 52% tax on gross income for people earning £50-60K

Huh? The income tax rate is 40% and isn't payable on the entire income unless you're adding on NI or/and other taxes. Everyone gets the first £10,600 tax free.

Inheritence tax threshold down to £20k (so plenty of money for granny wedding ring)

Could that cause any issues when a part owner of a property inherits the other part of the property they live in? The last thing a grieving widow living in a very small property needs is to have to put their home up for sale because they can't afford the tax bill. Although, I do think a £325,000 threshold is too high at a time when there are so many government cuts due to the government having no money.

 

[miami]

Huh? The income tax rate is 40% and isn't payable on the entire income unless you're adding on NI or/and other taxes. Everyone gets the first £10,600 tax free.

As explained above, the £878 overtime the train driver with 2 kids earns costs his employer £1000 due to NI employer contribution. That £878 is taxed at £351.20 (income tax 40%), £17.56 (National insurance 2%), and loss of child benefit of £157.06, leaving £352.18.

That's a tax of 64,8% on the money the company spent on his overtime, and
Just looking at the gross wage it's a tax of 60%.

Without the kids the driver keeps £509.24 of the £1000, that's still a tax of 49%.

If that £1000 was taxed as capital gains it would have had £280 taken off it, and I believe child benefit would be untouched. This would leave £720 in the driver's pocket, with a tax rate of 28%. Post this budget that's gone down to £200 taken off, for a tax rate of 20%. That's less tax than someone on a minimum wage job pays on overtime (which is 20% income tax and 12% national insurance, even before employer contributions -- with employer contributions the tax on minimum wage overtime is 41% -- earn £11k, costs 11384.54, net pay 10567.20. Earn an extra £1k, cost goes up to 12536.54, net pay goes up to 11247.20. That's a cost increase of £1152, and a net pay increase of £680, with the government taking the extra £472, which is 41% of the extra money spent)

Could that cause any issues when a part owner of a property inherits the other part of the property they live in? The last thing a grieving widow living in a very small property needs is to have to put their home up for sale because they can't afford the tax bill. Although, I do think a £325,000 threshold is too high at a time when there are so many government cuts due to the government having no money.

Happy for these to be added as charges on the home for 20 years, payable when the house is sold. Same should apply to council tax -- let pensioners monetise their property without having to go to those equity release firms that take massive amounts.

Same with kids whose parents die - you can stay in the same house until 25 before the tax becomes due.

 

[Darren R]

...if you buy a house instead of rent, you make a massive amount of untaxed unearned income.

No you don't - not unless you rent out the house, in which case you are taxed on the rental income. Profit is not income.

Buy your house in Nov 99 for £187,500. Pay 40% tax, retire in March 2011 aged 57, take a few odd jobs to keep you going at £7k a year (or whatever the personal alowance was).

Pay 40% tax on what? If you are only earning up to the limit of the personal allowance, you're not paying any tax, let alone 40%.

Sell the house in Jan 2012 for £442,500, netting £255k over 12 years, or £21k a year.

If that had been taxed as income (which would be fair), it would attract 11 years at 40% and 1 year at 20%, or £96,600.

Accepting your premise (which I don't, btw!), you would not pay income tax at 40% on £21,000 per annum. You would pay 20% x (£21,000 minus the Personal Allowance). In the current tax year that works out at £2,080 tax payable. Over the 12 years that's considerably less than the £96,600 you calcalute.

Instead it's exempt from CGT. Even if it weren't it would be taxed at 18%, or £46k - £50k more than it would have been taxed if it was income over that time period.

The rate of Capital Gains Tax on the majority (if not all) of the profit would be 28%, not 18%. Using your example, the amount of Capital Gains Tax payable on the disposal would be £62,024 for someone earning £20,000 and assuming that not a penny has been spent on improving the property in the 12 years of ownership. Your numbers do not add up.

 

[miami]

No you don't - not unless you rent out the house, in which case you are taxed on the rental income. Profit is not income.

It's extra money in your account. From Principles of Economics:

for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents, and other forms of earnings received... in a given period of time."

Pay 40% tax on what? If you are only earning up to the limit of the personal allowance, you're not paying any tax, let alone 40%.

Most people that have £300k houses will have earned higher than the 40% threshold. If not it's yet more evidence that wages bare no relation to wealth.

Accepting your premise (which I don't, btw!), you would not pay income tax at 40% on £21,000 per annum. You would pay 20% x (£21,000 minus the Personal Allowance). In the current tax year that works out at £2,080 tax payable. Over the 12 years that's considerably less than the £96,600 you calcalute.

Only if you earned nothing during that time. It would be added to all your other income (which as defined above includes capital gains)

The rate of Capital Gains Tax on the majority (if not all) of the profit would be 28%, not 18%. Using your example, the amount of Capital Gains Tax payable on the disposal would be £62,024 for someone earning £20,000 and assuming that not a penny has been spent on improving the property in the 12 years of ownership. Your numbers do not add up.

Because you insist on ignoring the fact that Joe Bloggs would also have been earning a wage during that time.

 

[DynamicSpirit]

Agree that much of the system is crazy but you might have acquired wealth/land by being a friend of William the Conqueror. It is a long time ago but we have to be fair now... Surely capital gains should be taxed just the same as income. Currently it's less. Why FGS?

I'm inclined to agree. I think what we should aspire to as a system where the amount of tax you pay depends basically on your total income, and not on the category into which that income falls. Right now, it's crazy that income from different sources is taxed at different rates. Offhand I can't think of any legitimate reason why capital gains should incur less tax than the same income earned through a job.

One of the silliest things about the current system is that - as someone who owns my own company, I can quite legitimately and legally change how much tax I owe HMRC just by making purely accounting decisions that have no real impact on my business or on what I'm earning (such as whether I take my income as salary or as a dividend). That feels wrong to me - and that kind of system also means the people who benefit most are the people who can afford to pay the best accountants - which of course is one reason why you often see companies that make the highest profits paying the lowest effective tax rates.

 

[pemma]

As explained above, the £878 overtime the train driver with 2 kids earns costs his employer £1000 due to NI employer contribution. That £878 is taxed at £351.20 (income tax 40%), £17.56 (National insurance 2%), and loss of child benefit of £157.06, leaving £352.18.

That's a tax of 64,8% on the money the company spent on his overtime, and
Just looking at the gross wage it's a tax of 60%.

Without the kids the driver keeps £509.24 of the £1000, that's still a tax of 49%.

So you're claiming the removal of a benefit is a tax? On that basis rail passengers have paid more and more 'tax' every year as rail fares have been going up above RPI, while subsidies have been cut. On the other hand drivers get free train travel from their employers so the value of that is going up every year meaning they're getting a higher benefit so surely that's a tax reduction by your definition?

 

[miami]

So you're claiming the removal of a benefit is a tax?

The balance of payments between the train driver and the government means that for £1000 extra the TOC spends, the driver's bank balance increases by £352.18.

Yet run a company and have a half-decent accountant and that £1000 turns into at least £800 in the bank.

There is one point where earning £1 more means you actually lose about £210 - that's if that £1 is takes your income from £42,384.50 to £42,385.50 and you're using the marriage allowance.

(P.S. marriage allowance has a separate "savings interest" exemption of £5000 -- to earn £5000 in interest you need to have at least £100k in the bank, more likely £300k. Someone with 6-figures in the bank is rich, no matter what their "income" is)

 

[Darren R]

(P.S. marriage allowance has a separate "savings interest" exemption of £5000 ...

No it doesn't. The new Personal Savings Allowance from April 6th this year will be a maximum of £1,000 for Basic Rate Income Tax payers, reduced to £500 for those on the Higher Rate and nil for those paying the Additional Rate. There is no marriage allowance savings interest exemption of £5,000. I think perhaps you are getting confused with the Savings Income Starting Rate, which is £5,000; but this is something completely different, and only applies to those who have very low taxable Non-Savings Income. (And is nothing to do with being married.)

I find myself very confused by what it is, exactly, that you are proposing in relation to taxing property profits. I asked you earlier what you are proposing to tax at 40%, but you didn't tell me. You appear to be suggesting that property owners are taxed on the profit made on the sale of the house in the form of Income Tax levied during the period of ownership. For obvious reasons that can't be what you are saying and I have misunderstood, but I can't for the life of me figure out what you are suggesting.

 

[tranzitjim]

Did this budget include anything for rail?

Any funding for more lines or trains etc?