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15th October 2018, 04:40 PM | #1 |
Penultimate Amazing
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Pensions Tax-Relief Thresholds
There is an Autumn budget due end of October 2018. Chancellor, Philip Hammond is strongly expected to decrease the tax-relief threshold from £40K per tax year, to just £30K.
This will affect self-employed people, for example, who've ploughed their profits back into their business, and then plough them into a pension fund in the years leading up to their retirement. Is it fair to target people maximising their savings?
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16th May 2019, 04:49 AM | #2 |
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(I know this is a really old thread, and that Hammond in the UK stepped back from reducing pension tax relief)
It is "fair" (not everyone agrees but this is the metric) to target people with a lot of savings, because they have greater ability to fund the government. But someone who maximises their savings usually suffers less tax than someone who doesn't before and after any such change as this. Tax relief on pension saving has been coming down persistently for years, but it is still net tax relief. There's almost no tax relief on spending money instead (there is for making charitable donations) Most people would think there is a point beyond which it is unfair to remove the tax relief on retirement saving, but then again many people who see that someone else is affected by any particular tinkering with the system will think it's OK, particularly if they actually benefit. Objective (impartial) fairness requires a level of indifference that all those affected do not have, and even then fairness is about ideas not facts. |
16th May 2019, 06:42 AM | #3 |
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I don't understand why the government is putting any money at all into pension funds. If savers are making "after tax" contributions then that sounds like churn to me.
Surely the fairest system would be to just make contributions into a pension fund fully tax deductible (and any income earned by the fund tax free) while any withdrawals would be fully taxable income. |
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16th May 2019, 07:06 AM | #4 |
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16th May 2019, 07:15 AM | #5 |
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16th May 2019, 07:20 AM | #6 |
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16th May 2019, 07:36 AM | #7 |
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16th May 2019, 07:39 AM | #8 |
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That's the same doublespeak that would say that tax cuts are a gift/subsidy. It's used all the time all over the place.
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16th May 2019, 07:53 AM | #9 |
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It's not exactly the same. A discount on the tax that somebody would otherwise be required to pay for whatever reason is a gift/subsidy - unless it is an unconditional discount that applies to everybody. "Pay" implies actually handing money over.
I get your point about doublespeak however. Politicians are apt to describe a discount as a "payment " to make it sound more generous. |
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16th May 2019, 07:58 AM | #10 |
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I'm rather absolutist on this and disagree--a refund of tax isn't a gift unless paying the tax in the first place was a gift, which it wasn't.
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16th May 2019, 01:28 PM | #11 |
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For clarity: Yes that is the general rule in the UK.
The wrinkle is how it works in practice under the PAYE system. To simplify things payments into pension funds are assumed to be net of basic rate tax (20%) ie pay in £80, and it is assumed that the payment is really a pension contribution of £100 and the pension provider recovers £20 from the government. No other adjustment is needed for basic rate taxpayers. If you are a higher rate (40%) taxpayer, you pay in £80, and the pension provider recovers £20 from the government. On your tax return you state that you made a pension contribution of £100. You should have paid net £60, but actually paid net £80, so the government pays the difference back to you as a tax refund. Tax relief for higher rate taxpayers is expensive for the government, both in timing (tax relief now, recovery 30 years in the future) and because relief on contributions is at 40% while it is likely that the tax on pensions in payment will be only 20%. Therefore all the attempts on limitations on tax reliefs on contributions. |
16th May 2019, 06:46 PM | #12 |
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16th May 2019, 06:49 PM | #13 |
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It sounds like you believe that "taxation is theft" (which it probably is).
Regardless, there is no difference in the bottom line if you get a discount on your taxes or you pay the normal rate of tax and get a handout from the government. in practice, the latter involves churn and probably time delays as well. |
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17th May 2019, 04:24 AM | #14 |
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18th May 2019, 08:37 AM | #15 |
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