Wealth Tax in the UK

[Dumbstar]

I can’t imagine this wealth tax will take pensions into account. “In the bank” is quite different and suggests liquidity.

Unfortunately the (locked/inaccessible) pension fund seems to be part of the equation. I used a wealth tax calculator online and it's the significant tipping point for me.

 

[11101]

£100k in the bank and living in a £400k house is wealthy. That is beyond most people in the UK.

Nobody in here seems to understand that you accumulate wealth as you age. No 21 year old is going to have that but it's not far off the average (332k total is the average) for a 60 year old.

 

[Heardy]

Interesting to see what people's view is of "wealth" in terms of pension pot. Seen people talking of £100k as constituting wealthy, but in reality that'd mean a very meagre retirement no?

What are people aiming to have squirrelled away in a pension pot come retirement?

 

[Pexbo]

Nobody in here seems to understand that you accumulate wealth as you age. No 21 year old is going to have that but it's not far off the average (332k total is the average) for a 60 year old.

Equally, the other half of the “nobody” in here fails to consider the idea that most people in that position could definitely afford to pay the tax being described without it impacting their breadline.

Of course barely any of them will want to and plenty might notice it’s missing but it’s never intended to be a tax on only the Jeff Bezos of this world. It’s an emergency tax to help get the country out of the position it’s in and the plan is obviously to target those who can afford to pay it without impacting their basic level of living.

 

[MikeUpNorth]

Interesting to see what people's view is of "wealth" in terms of pension pot. Seen people talking of £100k as constituting wealthy, but in reality that'd mean a very meagre retirement no?

What are people aiming to have squirrelled away in a pension pot come retirement?

Yeah, I don't think many people actually understand how pensions and compound returns work. It takes an absurdly low value of contributions to hit a £100k pension pot by retirement age. Assuming you work for 40 years, my rough calculations are that - if you're a basic rate taxpayer - you would need to contribute just £35 a month in post-tax money (grossed up to £70 with 20% tax-break and 3% contribution from your employer) to hit £100k in your pension pot (based on a conservative return of 5% per year).

When you actually start messing around with compound returns calculators and the tax-efficiency of pension contributions, it's surprisingly easy to hit the lifetime allowance of £1,073,100.

 

[sullydnl]

Equally, the other half of the “nobody” in here fails to consider the idea that most people in that position could definitely afford to pay the tax being described without it impacting their breadline.

Of course barely any of them will want to and plenty might notice it’s missing but it’s never intended to be a tax on only the Jeff Bezos of this world. It’s an emergency tax to help get the country out of the position it’s in and the plan is obviously to target those who can afford to pay it without impacting their basic level of living.

Indeed. It's a wealth tax, not a riches tax. In this case a wealth tax that (at a 500k threshold) covers the wealthiest 17% of the country. That hardly seems an outrageously broad sweep of the country to deem wealthy enough for an emergency tax in an unprecedented crisis.

 

[Jippy]

Yup, a number of people that obviously view themselves as average, lower-middle class people, seemingly oblivious to what being on something like 150k a year means in the grand scheme of things. All of their friends probably earning similar money, and they don't feel 'rich', and work in industries where a lot of people make even more than them, so it's easier to feel like you aren't deserving of any label. This whole 'London' notion is ridiculous as well, you can live 50 mins/1 hr outside London while working there, nobody is forcing anyone to buy a home smack bang in the middle of London, 20 mins from work. Dublin house prices are pretty similar to London outside of the ludicrous 0.0001% top end, and I certainly wouldn't say I'm not wealthy, just because I couldn't afford one of them(and I earn nothing close to some of the figures being mentioned in here).

You'd need to be a multimillionaire, in most instances, to live 'smack bang in the middle of London'. Greater London and the commuter towns in Surrey, Oxfordshire, Hertfordshire and the like are the most expensive areas in the country outside of central London. If there was a reasonably cheap commuting location outside of the centre, I'm sure some of the 8 million or so people living around there might have found it.

 

[Rado_N]

No not necessarily unfairly treated no, I'm just trying to point out that to me, a 500k threshold doesn't equal a wealth tax that would "stick it to the rich" either. Most really wealthy people would also not have that on their personal accounts but in trusts, companies and the likes. And they'd be able to shift whatever wealth they have in personal name before it would affect them, so it would rather impact the people living in that mortgage free house with a bit of savings built up than the extremely rich imo.

The government would need to map everything (would that work privacy wise?) to be able to make this work - is that feasible and cost efficient? Can't speak for the UK but our tax system here is already so absurdly complicated that we really shouldn't be adding another layer, yet should be looking at a complete rebranding in order to get to a simple, fair and easily collectable tax system. Adding another tax (and let's not forget that there are already quite a few taxes on assets anyway) wouldn't solve a thing.


Not sure if € and £ makes that big of a difference right now, and by no means I'm saying that you're not "rich" if you have that, but that's not outrageously wealthy either. My mum is a college teacher living in a €400k home making probably around €40k a year - she could easily afford £500 per year for 5 years but that's not the kind of people I have in mind when I hear you talking about a wealth tax at all, that's all I'm trying to say.

I think we’re talking at cross purposes and there’s a fundamental misunderstanding of the issue here, which don’t get me wrong I understand.

At no point is the purpose of this to “stick it to” anyone (I used that term for why a CGT increase is an easy political win but doesn’t actually solve the problem), it’s to dig the country out of a hole during highly unusual circumstances.

It’s a problem solving exercise, where the UK government has a £250bn (not sure of the number that’s just for illustration) spending shortfall it needs to recover via increased tax yield as an emergency one-off event.

The question is how do you accomplish that in the fairest way possible.

Nobody is arguing that £500k is “outrageously wealthy”, it’s simply one of the thresholds that has been suggested as a point where the people who will be impacted by the proposed tax can afford the impact of it.

Someone with £600k net wealth can afford to pay £1,000 per year for 5 years without it causing them undue problems, no matter where that wealth is held. Certainly a lot better than it could be absorbed in the way of an increase in tax on income or sales, which will have a higher impact on lower income/less wealthy households.

None of this is about punishing anybody and the mental gymnastics from some in this thread to paint themselves as not being wealthy is not only laughable in some cases but is just missing the point.

 

[Jippy]

Yeah, I don't think many people actually understand how pensions and compound returns work. It takes an absurdly low value of contributions to hit a £100k pension pot by retirement age. Assuming you work for 40 years, my rough calculations are that - if you're a basic rate taxpayer - you would need to contribute just £35 a month in post-tax money (grossed up to £70 with 20% tax-break and 3% contribution from your employer) to hit £100k in your pension pot (based on a conservative return of 5% per year).

When you actually start messing around with compound returns calculators and the tax-efficiency of pension contributions, it's surprisingly easy to hit the lifetime allowance of £1,073,100.

Yeah but the bigger issue is people starting contributing late rather than the amount they contribute. It's tough when you have student debts and are then saving for a deposit in London.

 

[MikeUpNorth]

Yeah but the bigger issue is people starting contributing late rather than the amount they contribute. It's tough when you have student debts and are then saving for a deposit in London.

Yeah, I agree. Even delaying starting saving until your 30s is a huge disadvantage. If you leave it until your 40s then you're really running uphill. It's a big bugbear of mine as I've lost count of the number of times I've heard friends and colleagues say stuff like "Pensions are a scam" or "I'll never be able to retire"... they don't realise what they're missing out on.

I think if you have salary sacrifice open to you, then you can contribute pre-student loan repayments.

 

[Murder on Zidanes Floor]

Well just my $0.02 but the Tories used the previous financial crisis to wage a war of austerity against the already impoverished people in this country. Perhaps the austerity will just be focused at those with a little more to offer.

 

[Cassidy]

Well just my $0.02 but the Tories used the previous financial crisis to wage a war of austerity against the already impoverished people in this country. Perhaps the austerity will just be focused at those with a little more to offer.

Fair point.

 

[Murder on Zidanes Floor]

Surely the only justifiable way to tax somebody on their ability to pay, is by taxing what they currently earn?

Hitting a pensioner, in a home that has increased in value, on paper, is more unfair than taxing someone who earns vastly more than they need to live comfortably. All whilst allowing corporations, registered elsewhere, to avoid paying the correct tax, on profits made in the UK.

Still, at least HS2 can get built, so that wealthy Londoners can buy cheaper houses, up north, but still commute.

Or that Northerners can benefit from increased London salaries and opportunities and their mortgage/rental costs reduce at a % of their earnings. It's not a one-way line!

 

[RedRover]

To be slightly contrarian here, there is plenty of compelling evidence that high rates of home ownership are bad for society. Excessive rates of home ownership are linked to higher unemployment, lower wages, and less business formation. This seems to be primarily due to reduced geographic mobility, lower productivity (longer commute times), and misallocation of capital in bidding up house prices rather than being directed to the productive economy.

While the effects are primarily on society in the aggregate, there are negatives for home owners themselves. It's known that frequently changing employer and progressing up the career ladder in the early stages of your career is important in raising your lifetime earnings - premature home ownership can impede that mobility. It's also the case that young people saving for a house deposit tend to keep that in cash (with good reason as they expect to need it in under 10 years), however this contributes to young people underinvesting in the stock market and missing out of the massive boost from long term compound returns.

If I were designing society, I would stop incentivising home ownership and further strengthen renter protections.

All of that may be true, but as it stands, whether based on established (and perhaps changeable) societal norms or not, a lot of people aspire to own a home. Working hard and still not being able to do so must, for many, be a very bitter pill to swallow.

 

[MikeUpNorth]

All of that may be true, but as it stands, whether based on established (and perhaps changeable) societal norms or not, a lot of people aspire to own a home. Working hard and still not being able to do so must, for many, be a very bitter pill to swallow.

Yes, no denying that.

 

[NotThatSoph]

All of that may be true, but as it stands, whether based on established (and perhaps changeable) societal norms or not, a lot of people aspire to own a home. Working hard and still not being able to do so must, for many, be a very bitter pill to swallow.

It's a bit of a funny contradiction of sort, though.

People want to own a home, and they want to be wealthy. But, if they own an expensive house they don't consider themselves wealthy, even though they would if they held the same amount of wealth in other assets. Maybe not a contradicton, but curious.

 

[Murder on Zidanes Floor]

It is depressing to see such an obvious mistake being used to justify policy decisions.

The generation currently around retirement age sent one in ten people of that generation to university free of charge. That is not a generous govt education policy. Considering the school leaving age has risen to 18 which is two more free years of education which was only afforded to 30% of those approaching retirement.

So not only has that generation paid extra for free education for those that followed, which it never received in the majority itself, it is now going to be used as a reverse justification to charge them again.

I disagree with this and think the point is incorrect;

Older generations didn't have a wealth of organizations ring-fencing job opportunities and making them available to "graduates only". They were able to enter the workforce without a huge need to encumber themselves with debt. Also, those who did go into higher education faced zero debt repayments.

To say that free education is not a generous govt policy is strange. The policy wasn't that they capped higher education levels at 30%, it was that university wasn't required to be able to be competitive in the job market, so they uptake in higher education was lower?

 

[11101]

Equally, the other half of the “nobody” in here fails to consider the idea that most people in that position could definitely afford to pay the tax being described without it impacting their breadline.

Of course barely any of them will want to and plenty might notice it’s missing but it’s never intended to be a tax on only the Jeff Bezos of this world. It’s an emergency tax to help get the country out of the position it’s in and the plan is obviously to target those who can afford to pay it without impacting their basic level of living.

What i have a problem with is it's a tax that disproportionately affects those in the middle. Studies show that most people who have a few hundred thousand or a million or so have most of their wealth in housing, whilst the richer you get the more you have it in trusts, investments etc. That's excess wealth and there is a big difference between that and being comfortable with a paid for house and some savings. The genuinely wealthy have enough excess wealth that a 1% tax is inconsequential to them, that's not the case for somebody who has 500k. That's why we have progressive tax rates. What is being proposed is a savings tax, the discussion is about where that bar is set. If it's a flat rate then to be truly fair it would be a 1% tax on everything from 0.

Do you really think once it's implemented it will ever be rescinded? Or that it will rise with inflation? That's not how taxes work. Most of us in here will fall into it one day.

 

[Grinner]

Higher education must be free. How they pay for it is another matter. I'm sure there are plenty of other options and it would be a daft move by the tories to start squeezing their biggest support base.

Perhaps it should be calculated based on what you owe on your house. A person could be mortgaged to the hilt and therefore not truly asset rich.

 

[RedC]

You'd need to be a multimillionaire, in most instances, to live 'smack bang in the middle of London'. Greater London and the commuter towns in Surrey, Oxfordshire, Hertfordshire and the like are the most expensive areas in the country outside of central London. If there was a reasonably cheap commuting location outside of the centre, I'm sure some of the 8 million or so people living around there might have found it.

People in this thread are talking about 500k+ apartments, and 5k/month rent, you're telling me that these are the prices 1hr outside of London in all directions? I know a number of people living in the surrounding areas of London(closer than 1hr) that aren't paying anywhere near those figures, my main point is that when people trying to justify making 100k+ yet having no money living in London, they always mention what seem to be extremes. If you choose to live in an extremely nice apartment, for example, I don't think that can be used to claim you're not wealthy, living in a really nice place constitutes wealth, even if it means you don't have loads of spare cash each month.

 

[Murder on Zidanes Floor]

Correct me if I am wrong, but if you have a £500k house in the South East, unless you have paid off your mortgage, your net wealth isn't £500k? It is £500k minus the mortgage that is left?

So if you paid off your £450k mortgage after 25 years, that house has increased in value by what, 200%? 400%? Your asset has increased substantially and unless you've moved no house, you have paid no tax on that gain?

 

[MikeUpNorth]

Correct me if I am wrong, but if you have a £500k house in the South East, unless you have paid off your mortgage, your net wealth isn't £500k? It is £500k minus the mortgage that is left?

So if you paid off your £450k mortgage after 25 years, that house has increased in value by what, 200%? 400%? Your asset has increased substantially and unless you've moved no house, you have paid no tax on that gain?

Yeah, the boomers were basically leveraged rich as interest rates dropped massively over their working lives. It (probably) won't be the case for our generation that we'll see huge long-term above-inflation rises in property prices.

 

[Dumbstar]

Yeah, I don't think many people actually understand how pensions and compound returns work. It takes an absurdly low value of contributions to hit a £100k pension pot by retirement age. Assuming you work for 40 years, my rough calculations are that - if you're a basic rate taxpayer - you would need to contribute just £35 a month in post-tax money (grossed up to £70 with 20% tax-break and 3% contribution from your employer) to hit £100k in your pension pot (based on a conservative return of 5% per year).

When you actually start messing around with compound returns calculators and the tax-efficiency of pension contributions, it's surprisingly easy to hit the lifetime allowance of £1,073,100.

Ha! You're fecking kidding. My retirement pot is estimated at just shy of 200k at 60. And I'm a reeeal wealthy person! That means I can't afford to pay rent and afford heating when I retire.

Edit: assuming I've sold my house to save my children from debt slavery that is.

 

[MikeUpNorth]

Ha! You're fecking kidding. My retirement pot is estimated at just shy of 200k at 60. And I'm a reeeal wealthy person! That means I can't afford to pay rent and afford heating when I retire.

How much is in it now and how long until you retire?

 

[RedC]

Ha! You're fecking kidding. My retirement pot is estimated at just shy of 200k at 60. And I'm a reeeal wealthy person! That means I can't afford to pay rent and afford heating when I retire.

Why would you need to pay rent?

 

[Heardy]

Yeah, I agree. Even delaying starting saving until your 30s is a huge disadvantage. If you leave it until your 40s then you're really running uphill. It's a big bugbear of mine as I've lost count of the number of times I've heard friends and colleagues say stuff like "Pensions are a scam" or "I'll never be able to retire"... they don't realise what they're missing out on.

I think if you have salary sacrifice open to you, then you can contribute pre-student loan repayments.

I agree with you and @Jippy on this. I prioritised getting on the property ladder and paying for a wedding and only really started making decent contributions when I was 32.

I / my employer were putting £1100 (combined) per month in over last couple of years albeit that has dropped to just over £700 as a result of covid (hoping it’ll go back up again later this year).

Using the pension planning tools this says I’ll still be in a huge deficit compared to current salary / lifestyle despite it expecting to reach over 600k by time I retire.

I genuinely don’t know how people expect to live with no pension...

 

[Grinner]

Ha! You're fecking kidding. My retirement pot is estimated at just shy of 200k at 60. And I'm a reeeal wealthy person! That means I can't afford to pay rent and afford heating when I retire.

You'll be getting state pension too. I'm lucky enough to be getting double bubble as I paid into US Social Security too. It will all be gravy.

 

[Heardy]

You'll be getting state pension too. I'm lucky enough to be getting double bubble as I paid into US Social Security too. It will all be gravy.

Depends on how old people are - I’m not convinced there will be much of a state pension 30 years from now.

 

[Murder on Zidanes Floor]

Interesting to see what people's view is of "wealth" in terms of pension pot. Seen people talking of £100k as constituting wealthy, but in reality that'd mean a very meagre retirement no?

What are people aiming to have squirrelled away in a pension pot come retirement?

People don't usually have an idea of this and I would implore people to look at what you will earn off your pension pot of £100k if you retire at 67 and don't expect to die by 68.

 

[Murder on Zidanes Floor]

Yeah, the boomers were basically leveraged rich as interest rates dropped massively over their working lives. It (probably) won't be the case for our generation that we'll see huge long-term above-inflation rises in property prices.

They also had the bank eat a large share of the mortgage when interest rates rose and they were on fixed rate mortgages.

 

[Murder on Zidanes Floor]

I agree with you and @Jippy on this. I prioritised getting on the property ladder and paying for a wedding and only really started making decent contributions when I was 32.

I / my employer were putting £1100 (combined) per month in over last couple of years albeit that has dropped to just over £700 as a result of covid (hoping it’ll go back up again later this year).

Using the pension planning tools this says I’ll still be in a huge deficit compared to current salary / lifestyle despite it expecting to reach over 600k by time I retire.

I genuinely don’t know how people expect to live with no pension...

Hoping they can leverage their only asset, their property.

 

[MikeUpNorth]

People don't usually have an idea of this and I would implore people to look at what you will earn off your pension pot of £100k if you retire at 67 and don't expect to die by 68.

I'm working on the basis of a safe withdrawal rate of 3.5% of the initial pot per year (adjusted for inflation annually). The research suggests this should last for a minimum of 30 years in the vast majority (99%+) of cases, provided the pot is largely invested in equities.

On that basis, £100k would give you an income of £3,500 per year... yikes.

 

[Grinner]

Depends on how old people are - I’m not convinced there will be much of a state pension 30 years from now.

It won't be possible to live off it, but it will be a useful addition to your personal pot.

 

[Jippy]

People in this thread are talking about 500k+ apartments, and 5k/month rent, you're telling me that these are the prices 1hr outside of London in all directions? I know a number of people living in the surrounding areas of London(closer than 1hr) that aren't paying anywhere near those figures, my main point is that when people trying to justify making 100k+ yet having no money living in London, they always mention what seem to be extremes. If you choose to live in an extremely nice apartment, for example, I don't think that can be used to claim you're not wealthy, living in a really nice place constitutes wealth, even if it means you don't have loads of spare cash each month.

Small two bed flats are over £500k in zone 2 and 3, they're not luxury pads in Mayfair or even 'extremely nice'. They are just functional flats that would probably cost £120k in say Hull.

The issue of being cash poor is a real one though, as others have said- a pensioner who bought their modest three bed home under right to buy in the 80s could easily be sat on a £1m property, but be living on £80 a week on the basic state pension. They are not wealthy by any stretch. Clearly the definition of wealthy is very individual to people.

 

[Murder on Zidanes Floor]

I'm working on the basis of a safe withdrawal rate of 3.5% of the initial pot per year (adjusted for inflation annually). The research suggests this should last for a minimum of 30 years in the vast majority (99%+) of cases, provided the pot is largely invested in equities.

On that basis, £100k would give you an income of £3,500 per year... yikes.

Personally I am sacrificing portions of my salary so my employer gives me 13.8% contribution into my pension. If I stopped wanting to buy watches, cars, whiskey, and trainers, I could probably get up to £3k per month contribution.

 

[Grinner]

Small two bed flats are over £500k in zone 2 and 3, they're not luxury pads in Mayfair or even 'extremely nice'. They are just functional flats that would probably cost £120k in say Hull.

The issue of being cash poor is a real one though, as others have said- a pensioner who bought their modest three bed home under right to buy in the 80s could easily be sat on a £1m property, but be living on £80 a week on the basic state pension. They are not wealthy by any stretch. Clearly the definition of wealthy is very individual to people.

Maybe this country needs Tom Selleck to sell people reverse mortgages.

 

[MikeUpNorth]

Personally I am sacrificing portions of my salary so my employer gives me 13.8% contribution into my pension. If I stopped wanting to buy watches, cars, whiskey, and trainers, I could probably get up to £3k per month contribution.

Nice. My employer puts in 13% (8% default plus an additional 5% as they match some of my additional voluntary contributions).

 

[Jippy]

I agree with you and @Jippy on this. I prioritised getting on the property ladder and paying for a wedding and only really started making decent contributions when I was 32.

I / my employer were putting £1100 (combined) per month in over last couple of years albeit that has dropped to just over £700 as a result of covid (hoping it’ll go back up again later this year).

Using the pension planning tools this says I’ll still be in a huge deficit compared to current salary / lifestyle despite it expecting to reach over 600k by time I retire.

I genuinely don’t know how people expect to live with no pension...

Same pretty much. After my masters I was saddled with debt for five years to the point I had to borrow money to eat at times. I was earning little too and then it was all about getting married and building a deposit. My wife's old employer didn't even contribute to her pension for years until the rules changed.

 

[Dumbstar]

How much is in it now and how long until you retire?

About 160 now and estimated at 198 when I retire.

I would have contributed more but I needed cash when I was younger for daily expenditure (groceries, mortgage, etc).

 

[Jippy]

Maybe this country needs Tom Selleck to sell people reverse mortgages.

We have equity release, if that's what our equivalent is- there's been massive scandals around it over the years as it's a renowned rip-off. We had Cilla and Parky flogging crap life insurance products to the elderly, way less cool than Selleck.