Poor life planning..

[pocketpairs]

With the upcoming budget seen many "poor me" posts, particularly from high/middle earners. I find it frustrating that rather than blame themselves for thier life (& financial planning) choices, they blame some arbitrary government policy changes, such as upcoming introduction of new council tax bands.

Example: Sister & hubby earn £14k net p/m. But their choice to buy a nearly £x.xm house in SE & send DCs to private school means they have £3k (approx) to spend on everything else. They could have taken different choices...£1m houses &/or move to grammar school areas.

Clearly this is an extreme example, but I really don't understand why a family can't survive on £4-6k p/m, especially outside of London. Up until recently, I survived on much less and managed to put myself a firmer financial footing in 40s.

Sure this means some sacrifices, but it seems everyone wants to 'have their cake and eat it'.

This is fair enough - taking responsibility for your choices goes both ways.

And who are "those", pray tell?

Haven't you figured it out yet..

You live in a society which supports you and your life- paying taxes is not "losing money" you are contributing to the infrastructure which makes your life possible- why shouldn't everyone one pay to support their own life, why should they feel aggrieved?

Of course - nobody disputes that we need taxes and richer people should pay more. But the problem with your argument is it could be used to justify any level of tax: tax rates at 90% would still be “contributing to infrastructure” but almost everybody would consider that manifestly unreasonable. It’s perfectly legitimate to argue about what level taxes should be and to consider certain rates to be unfair.

The problem is once its done, its done you buy the house, its quite hard to undo on a timely basis. It the same with lots of things on contract. Even schools fees arent easy to drop. You have to give a terms notice.

Hindsight is a wonderful thing, and people shoukd have buffers but mortgages, utilities, food and school fees did make a dramatic jump quite quickly.

I say this as someone who did not take the biggest mortgage we could and am glad about it now, so I did plan a bit but im happy to forgive others who make a mistake in thier planning.

To be honest i think more and more we are seeing arguments that tax is not really necessary- the comment I commented upon claimed that any level would still make them feel they were aggrieved because they were "losing money". Taxation rates is a whole subject on it's own, but the truth is most taxation should be on wealth not work- in this climate which has seen more people than ever before become mega wealthy.
Passive income is what the very wealthy live off, not income- since the vast majority of taxes we have are income taxes- that means the vast majority of unearned income goes completely untaxed.
This is the issue that needs addressing.

Thanks for a balanced and thoughtful post. I just want to take issue with your point about the vast majority of passive income going untaxed. This isn’t true - if you’re UK resident all your passive income will be taxed. If you include corporation tax (which is effectively paid by shareholders) shareholder income is taxed at higher rates than labour income. Capital gains are more lightly taxed because inflation erodes the value of capital and is effectively another tax. Including inflation it works out about the same.

If you move to Dubai for five years and realise your gains there you can get away without paying any tax. You don’t even have to work there. That’s true. But requires quite a big sacrifice.

There is one area of capital gains which is totally untaxed though and that’s property. I think your argument is absolutely true when it comes to houses. Why should Ben be totally untaxed on the gains from his million pound house that he bought for £50k, when Belinda is taxed at 47% for striving to earn enough money to buy an equivalent house. Tax free capital gains on houses should be capped, maybe at £100k or £200k.

There has to be balance to squeeze the most tax out of higher earners before they have enough and cut hours or move. It's going too far and they'll be less revenue. You can blame who you like but bleating about relative poverty won't change that. This gov have gone too far, whether it's real or imagined and the private / public divide is clear.

This government are allowing their policies to punish ordinary people who made sensible decisions in view of the then rules. This is my main objection to this government's policies.

I made decisions about pensions 25 years ago, when I was 45, and have paid in money assiduously ever since to ensure I was not dependent on the state pension alone. My Mother was, and it wasn't comfortable. Now I am almost 70, anything leftover is taxable so I am gifting as much as possible while I probably have seven years left to live. I'll keep enough to get by but paying for people that made no provision for their dotage is a hard NO.

Officially you may be right, but the truth is truly rich people have teams of people working for them ensuring they pay little or no tax- it is the top 2% of wealth holders that need looking into very closely.
If the tax plan you lay out was actually a really for all wealth holders we wouldn't have such a bankrupt government and people would not be struggling like they are. Capital gains on property is too slow to get us in a better position- it would take at least a generation, taxing passive income would be far more effective , and much quicker.

I’m one of those rich people, and so are lots of my colleagues. Other than ISAs/Pension/VCT schemes and similar (which are all government sanctioned and limited in scope), or outright tax evasion (which risks a prison sentence) I promise you you just have to pay your tax. You can’t pay a lawyer or accountant to make your tax go away. You might if you’re lucky get some income classified as cap gains. The only truly effective thing you can do is leave the country, and lots of people are doing that. But government can’t stop that with legislation.

Caveat to the above: this refers to income tax / cap gains tax. Inheritance tax is mush easier to avoid or reduce and I think most people do take (perfectly legal) action on this. That’s what a lot of those expensive lawyers are working on. But again, hard for government to do much about it because there would be an outcry, as any crack down would catch middle class people too.

@AlastheDaffodils ,

I am relatively well off too (prob most on here would consider me rich).

Some of the things you mention aren’t small! I am divorced and have close to £700k in ISA accounts. For a married couple, you could double that.

CGT maxes out at 24%. That is a very low rate (admittedly not indexed). But that worked brilliantly for the years of 0% inflation and interest rates. I invest a little in private equity and most of the payments are capital gains, due to the structure. I have (very) little in EIS and VCTs too. Again these can work out very well. And they can be very much gamed. a lot involved wind schemes with guaranteed income.

And, of course, the super wealthy can use offshore trusts, ‘agricultural land’ and tax avoidance schemes involving film, music etc (although many (but not all) of these have collapsed.

It is still true that many wealthy pay a lower percentage of their real income (some structured as capital gains) than an employee on, say, £120k.

Should I pay more tax? I have paid a lot when I was in a high income job and pensions are still very heavily taxed, so I am not sure.

But my first choice is my children, so I am not going to make a volume donation to HMRC. It is up to politicians to make a sensible tax structure, something that they have singularly failed to do!

I wasn't talking about income tax- passive income is not taxed by income tax, because there is no work and no employer involved. The passive income from large investments should be taxed- not just when the asset is disposed of (CGT) this causes truly wealthy people to always hold onto assets which creates an every increasing cost for assets, because there is limited supply. Anyone who is not wealthy wants a better (or restoration to their former) standard of living and lower asset prices (such as houses and shares) should support the taxing of passive income as an ongoing thing, rather than just CGT- otherwise the majority of people will just keep getting poorer.

Passive income is taxed. What passive income isn’t? Maybe I have a huge gap in my knowledge of our tax system.

I pay tax on the paltry interest I make on my savings each year. It goes on my tax return, I pay tax on it.

Investments aren’t realised unless they are sold/ liquidated/ passed on (eg inherited) Growth of an asset on paper isn’t “income”. Investments go up and down.

@Laurmolonlabe Passive income is totally taxed. Savings income, bond income, dividend income. All taxed. The only exception is assets in an ISA but you’re limited to 20k pa.

@Newbutoldfather Your ISA has clearly done very well. Mine not so much!

We are not talking about people with a savings account and a couple of ISAs- Taxation on dividends is low, far lower than income tax, as is bond income, and rental income on property. Many very rich companies and people pay no tax at all, by using non-dom status- Amazon pays no tax because of this and many billionaires are British and live in Britain most of the year but pay no tax by having non-dom status.
Rich companies and people pay nothing like their fair share to HMRC, everyone knows this and it is disingenuous to suggest otherwise.

I’m sorry this is simply untrue. Savings or bond income for high earners is taxed at your standard marginal rate - ie 45% for people with high incomes. So is property rental income. Dividend tax is 39%, which is slightly lower but reflects the fact that shareholders have already indirectly paid corporation tax - if you include that the blended tax rate is higher than labour income.

Non-dom status doesn’t apply to companies, only to individuals. And it’s just been abolished. If you’re asking why big American companies don’t pay UK tax on their non-UK profits, it’s because they’re not in the UK. But they pay UK tax on their UK income. Amazon paid £5.8bn of UK tax last year.

Commonly-believed myths like the ones in your post are a psychological crutch which let us avoid engaging with the real issue, which is that the UK isn’t able to afford what we have come to expect from the state without all of us paying more tax.

Non dom went for decades, so it is good that it is tightened- but only for UK residents we have plenty of billionaires in the UK that are not citizens and very little of the money they make gets taxed. Google reckons you are wrong about Amazon and the total is £4.3 BN which sounds a lot until you realise it includes all VAT paid and all NI contributions for their workers- so the tax on profits is pretty light. Partly you are right that the expectation from the state is high- but it cannot meet expectations not because the tax burden is too low but because each subsequent government since 1980 has asset stripped the nation piece by piece- selling industries , utilities, buildings, land and rights- these assets have all been hoovered up by the very, very wealthy and all of these things are rented back out to the government at a premium, now the interest rates have recovered (as they were always going to) the government is basically bankrupt- most of our income tax goes to service the debt, therefore there is nothing left to provide services-despite the tax burden never being higher (in peacetime).
Considering these facts the 45% on dividends, and rental income you are wailing about is far too low.
These are not myths they are facts- the myth is very rich people persuading themselves they worked hard and deserve to be taxed lightly- we all work hard , we all have to take our share of the burden , and get rid of governments which are so dim they don't realise selling assets means you will bankrupt yourself.