To think that UK pensions and UK isas should be invested in UK based companies

[Noras]

On Radio 4 Today

Hundreds of companies are being brought and then revenue goes off shore. The impact is devastating as the UK Gove loses the tax take which means that the burden of tax falls on fewer shoulders.

This week we could be losing Lounges, Direct Line to oversea investors. I have no idea where there will remit taxes.

Our high street is increasingly populated with companies who don’t remit in the UK so your hard earned pound is sent overseas to benefit others.

We need to invest in companies listed in the UK or continue with exorbitant tax rises on individuals eg direct tax, council tax etc.

We need to invest in UK based companies both with our individual spending but also with our pension investments.

Well, that cannot be correct, as overseas pension funds invest in the UK, do you think ARM, AZ BAE or Manchester Airports groups would be poor investments?

The UK tax payer offers large tax breaks for pensions, there is no reason why say 10% should not be invested in the UK.

You mean bought, not brought.

There is an annual limit on ISA investment, which is more than sufficient. Taxing it if it grows too much would penalise investors for making good choices. Similar to the blessedly removed lifetime pension cap, limiting how big an ISA can get would encourage some really perverse behaviour.

I agree with other posters that the key is making the uk an attractive environment for business so that people want to invest, not forcing people to invest here. Personally I think uk pensions are overinvested in the uk given the poor performance over past decade.

Not really for instance the parent company in Lichtenstein lends money for the the purchase of the company in the UK. All profits from that company are remitted to Lichtenstein as interest where there is a lower tax rate. Tax legally avoided,

Thanks goodness you’re not in charge! I don’t even know where to begin with countering such rubbish.

I agree with something about tax relief being adjusted / increased/ better for Uk investments.

You couldn't be more wrong.

If they can, companies locate their head offices wherever the tax burden is lowest. For example, when Boots (the chemists) was bought by KKR & Co the headquarters of the the Boots Alliance group were moved to Zug in Switzerland, as a result of which the UK is estimated to have lost about £100m a year in tax.

Although an old article, you can read here about how Starbucks managed to pay less than 1% in Corporation Tax (i.e tax on profits) for over 14 years and in 2011 paid no Corporation Tax at all on a turnover of £398million:
Starbucks 'paid just £8.6m UK tax in 14 years' - BBC News

I’m not wrong. The UK and global tax systems are set up in this way. It’s unfortunate that unscrupulous organisations find ways around it and governments are too lazy or incompetent to enforce regulations.

Nope. Lower risk and higher growth, thanks.

Your statement that "Taxes are paid in the country where profits arise" is by your own admission incorrect, because you then state that "unscrupulous organisations find ways around it and governments are too lazy or incompetent to enforce regulations"

The "unscrupulous organisations" are doing nothing unlawful - they employ armies of accountants, lawyers and tax experts and lobbyists - but there is a whole industry dedicated to making sure that as far as possible, companies do NOT pay taxes in the country where the profits arise if it is to their advantage to avoid paying these taxes (or pay a lower rate in another jurisdiction).

This thread started by asking about where people should invest their pension and ISA savings. It could just as well be about where people spend their money. Given the choice, would you spend your money in a shop that pays UK taxes, or in a shop that is part of an organisation that seeks to avoid paying tax in the UK? Would you rather buy a coffee from a "tax avoider" or from a company that pays UK tax on its profits?

This.

There is nothing to stop investment managers from investing in UK companies - apart from fiduciary responsibility to the pension holders...

Most publicly traded companies are owned by a wide variety of shareholders. I don't know who owns 'Manchester Airports grpups', for example, but if publicly traded, it's probably part owned by Warren Buffet, Walmart, 'Billionaire Holdings, Inc.', Crispin Odey, Goldman Sachs, or other global entities including Chinese, Brazilian, Saudi, and other fund owners or managers. Just because a publicly traded company has 'Manchester', or 'British' or other recognizable placename in its name doesn't mean it's wholly British. Revenues from publicly traded companies flow all over the world.

There's nothing to stop you investing in uk pension funds or ISAs.

But ISA holdings can be over a million plus, moved annually into the investment vehicle, which for a couple is 40k per year, all tax free ie ISA wrap! not even any capital gains to pay.

Its an artificially created tax break which we can no longer afford and has gone way beyond what it was originally described as.

An investor can still make very good returns but pay your taxes!!! and yes it would affect me.

Plenty of UK companies have done very well, you re just looking at the FTsE 100 performance over the last few years, compared to the S&P500, it wont last for forever!
One of my P funds used to invest partly in UK land, they pulled out, just as land values rocketed.

I think the locals council own quite a bit of MAG... along with an Australian investment company......

So good enough for them but not for the UK... says it all about the UK and why we are so shit and let others make money from UK companies.

It would take decades of investing and some very good returns to amass a million in an ISA - same as building a pension pot. The whole point of an ISA (or a pension) is to encourage more people to save and invest. It is a fantastic mechanism for regular people to build wealth - something we should be encouraging not penalising - and I think that is exactly what it was meant to do.

Like with the pension cap, placing a lifetime cap on ISAs would just create weird behaviour as people make economically inefficient choices in order to avoid the cap. It wouldn’t collect much in tax because people would manage around it, and the choices they make with that money would not necessarily be better for them or the broader economy.

Those that amass large ISAs might be investing disproportionately abroad (logical given FTSE performance), but when they eventually spend the money it will mostly be in the UK going to UK businesses and adding to the Uk tax take via VAT or stamp duty.

There was a British ISA planned - an extra £5000 allowance. It's been scrapped though

If taxable profits arise in the UK then corporation tax is paid, income tax and NI is paid by UK employees and employers and VAT is paid by all UK based end customers. There are ways to avoid making or reduce taxable profits in the UK (such as transfer pricing, R&D tax credits, capital allowances from investing in fixed assets), but rules are strict, and headlines such as ‘xx have paid no tax on £xbn revenue tells you absolutely nothing. This is the case for all UK limited companies regardless of the location of the parent company.

The only impact of where the parent company is based is on extracted post tax profits - ie whether the individuals who own the shares of the ultimate parent company pay income tax on the dividends or capital gains tax on the sale of the shares. There is nothing we can do about this as long as countries who want to welcome wealthy people offer attractive (or non existent) extractive tax rates.

Not sure what this has got to do with pensions? They invest in diversified funds, UK is a mature market so investments are less risky but grow less than those in emerging economies, a pension fund that invested in only one market would not be a good one.

The purpose of the tax relief is to encourage people to save / invest and not be reliant on the state in old age. It’s not so the government can meddle in investment decisions - governments of all colours have been proven to be woefully inept at investment and spending decisions. Look at the last budget!

There is I think a case to cap the amount that can be sheltered in an ISA, but not a pension until public sector pensions are reformed. It’s shouldn’t be the case that the public sector employees (who take no investment risk at all with their pensions) should get better tax treatment than the private sector.

And to your addition @louddumpernoise no one expects the s&p500 to do well forever, but the basic fundamentals of the UK business environment are pretty poor compared to other countries. I am sure there are individually companies in the uk that are doing / will do well, but broadly speaking I think a US or EU based company is more likely to be successful than a UK one for a whole host of factors. As someone who mostly relies on index funds, I am not picking individual winners so much as evaluating relative areas of opportunity. When I see some sign that the UK is back on track for business I will reconsider, but Labour’s choices so far don’t make me believe a turnaround is likely in the next 5 years.

@Labraradabrador But why should people with large ISA holdings get their gains tax free? esp when there is zero requirement to invest in the UK?

For a couple, about 20 years would be enough for a £1m holding, they ve been about for 25 years, and we had TESSA's and PEPs before that which were transferred into ISA's.

PEPS started in 1986 and TESSAs in 1990, all those gains over the 35 to 40 years tax free.

We simply cannot afford to keep doing this, 23/24 cost to Govt is £7 billion, thats enough to fix NHS dentistry, what exactly is the benefit to the UK ?

Its a tax break for the well off.

It might cost £7 billion, but what are the saving to the treasury by older people being less of not dependent at all on benefits in older age? Or by younger people being able to save tax free for a deposit for a house, so they are less dependant on benefits. It’s just not as simple as you make out.

@louddumpernoise that £7 billion (less than that actually according to sources I have seen) is purely hypothetical and based on ALL ISAs being taxed. But if ISAs were suddenly taxable then people would stop using them and that money would go other places - some of it economically productive and some of it not. iSAs tax free status is an incentive to save and invest, and a pretty effective one -it provides a strong incentive to keep your money invested over time in order to maintain that tax free status, and allows far more people to build wealth, which is a good thing for society. I think the rise in ISA millionaires is a testament to the success of programme at an individual and also broader economic level.

the problem with your argument is that it views economic activity as a fixed sum (thus the false trade off of nhs dentistry vs. ISAs)but that isn’t how it works - economic activity can increase or contract based on people’s perceived interests. Tax breaks are not a gift to the receiver - they are a calculated choice to drive favourable economic behaviour.

The UK does benefit from a broader investor base. I’m currently funding a home Reno with my isa, and have about 2x what I would have had if I had put the same amount in a bank, and approximately 4x vs what I would have had without the incentive to save steadily over the past decade. All of that money that would not have existed without an ISA is now going to UK business and paying UK VAT.

The UK could benefit more if it were a more attractive place for businesses large and small, but you aren’t going to achieve that by trying to strong arm investors.

The legal requirement on pension scheme trustees and pension providers is that pension funds must be invested to produce the best financial return. You suggestion has been tried OP and both times it was successfully challenged in the Courts.

[Evans v London Co-Op and Cowan v Scargill]

You could make that argument for not taxing any sort of wealth at all, make a gain on a 2nd house sale? "no tax as i'll spend it on a new car/kitchen/vintage car and pay VAT.... "

What you re actually arguing for is an entitlement to have what you want, regardless of its wider cost.

Even if ISAs were taxed at the older CGT rates, you'd still be far better off than sticking it in a higher interest rate account.

Encourages investment? but not in the UK, its self fore filling, the less invested here, the less gets invested.

Millions of ordinary working people who cannot afford ISA's are paying taxes so you don't have too

Normal investments attract CGT, no reason why we even have ISAs now, as far as i can see, no other European countries have structures similar to ISAs either.