The forthcoming budget and retrospective taxation
Discussion
There has been a lot of discussion about changes to pension rules in the October budget (as many more obvious actions have seemingly been ruled out).
A couple of things mentioned as distinct possibilities are the replacement of marginal rate relief on contributions up to 60K pa, with some sort of standard relief rate, and/or further limiting the size of the tax free lump sum.
Would there normally be an expectation that these sort of actions would not be retrospective?
It seems unlikely to me that someone who deposited 60K of 24/25 tax year earnings before the budget, would receive a big tax bill following their tax return next year or that the value of someone’s existing pension pot would decline substantially after October (which would be the effect of reducing the tax free lump sum that could be taken).
However, avoiding this would require a substantial amount of extra admin on the part of HMRC, pension funds and providers etc. etc.
Is there precedent for this?
A couple of things mentioned as distinct possibilities are the replacement of marginal rate relief on contributions up to 60K pa, with some sort of standard relief rate, and/or further limiting the size of the tax free lump sum.
Would there normally be an expectation that these sort of actions would not be retrospective?
It seems unlikely to me that someone who deposited 60K of 24/25 tax year earnings before the budget, would receive a big tax bill following their tax return next year or that the value of someone’s existing pension pot would decline substantially after October (which would be the effect of reducing the tax free lump sum that could be taken).
However, avoiding this would require a substantial amount of extra admin on the part of HMRC, pension funds and providers etc. etc.
Is there precedent for this?
I’ve heard several people worrying about retrospective taxation, such is the level of trust in labour and these aren’t frothing Tory voters either.
I do think however that the slightest whiff of retrospection would cause taxation disobedience because I believe many people are on the f
kit threshold.
I do think however that the slightest whiff of retrospection would cause taxation disobedience because I believe many people are on the f
kit threshold.Retrospective would be very tricky. Think of the thousands of people getting 40/60/45% tax relief on pension contributions via payroll salary sacrifice. Payroll systems can't just flick a switch and try and recover additional taxes on a lower relief rate, and people may not have future payroll payments to cover that tax. The only way to recover would be via tax returns which would create huge admin for those who don't normally file, and more admin for HMRC to manage that they already struggle with.
Louis Balfour said:
I’ve heard several people worrying about retrospective taxation, such is the level of trust in labour and these aren’t frothing Tory voters either.
I do think however that the slightest whiff of retrospection would cause taxation disobedience because I believe many people are on the fkit threshold.
It’s caused by all the frothing idiots though. Many on here included. I do think however that the slightest whiff of retrospection would cause taxation disobedience because I believe many people are on the f
kit threshold.Dingu said:
It’s caused by all the frothing idiots though. Many on here included.
I would say, that it is mainly caused by senior government figures (including the PM) coming up with dire warnings about the pain to come in this budget, whilst at the same time seemingly ruling out all the obvious emergency money raising strategies (like for example a penny on basic rate income tax).It makes people think that something really ‘off the wall’ is coming.
I cannot see any of the to be announced changes being retrospective but there may be some with immediate implementation dates.
The obvious one being any reduction in the TFC allowance from a Pension which otherwise would trigger an immediate "run" on pots unless of course that's part of Rachels "clever " strategy for spending ?
I suppose if a cap is put on ISA's be it annual allowance or more likely the size of the Pot saved itself then that could also have an immediate date implemented providing a grandfather clause was introduced at the same time.
The obvious one being any reduction in the TFC allowance from a Pension which otherwise would trigger an immediate "run" on pots unless of course that's part of Rachels "clever " strategy for spending ?
I suppose if a cap is put on ISA's be it annual allowance or more likely the size of the Pot saved itself then that could also have an immediate date implemented providing a grandfather clause was introduced at the same time.
Foss62 said:
Dingu said:
It’s caused by all the frothing idiots though. Many on here included.
I would say, that it is mainly caused by senior government figures (including the PM) coming up with dire warnings about the pain to come in this budget, whilst at the same time seemingly ruling out all the obvious emergency money raising strategies (like for example a penny on basic rate income tax).It makes people think that something really ‘off the wall’ is coming.
They are now trying to find ways of raising taxes without raising taxes. Hence, hitting pensions, pensioners and so on.
MaxFromage said:
There is 0% chance that any of these changes will affect people obeying the rules prior to the announcement.
As an example, there's a reason why CGT is chargeable on the date contracts are exchanged and not completed.
But isn't that a good example of a tax that is retrospective?As an example, there's a reason why CGT is chargeable on the date contracts are exchanged and not completed.
For example if I owned a second house for ten years and it makes say 5% capital gain per year, then if Labour put up CGT on 1st Nov and I exchange on 2nd Nov then the new rate applies retrospectively to my entire gain that has built up over the previous ten years. As far as I am aware, the old CGT rate doesn't apply to the change date then the new rate thereafter so the new rate is applied retrospectively to all gains to date?
Personally have a bee in my bonnet about CGT as you pay it even if you have made a capital loss due to inflation over those same years.
Scarletpimpofnel said:
Personally have a bee in my bonnet about CGT as you pay it even if you have made a capital loss due to inflation over those same years.
It is interesting though the passion with which the left in some publications attack CGT as something the super rich use to 'avoid' income tax and that they are able to convert regular earnings to capital gains to do this - hence their demands that CGT be raised to the highest income tax levels.They ignore that:
1) CGT is a tax on inflation and a higher rate will drive behaviours that may not be desirable
2) There isn't any (legal) way of converting regular income into capital gains
3) HMRC only raises £15bn a year from CGT, so either there just are not the numbers of super rich that people think there are doing this or it is not a useful tax to focus on
4) HMRC estimate that if cgt were increased to income tax levels then the amount raised would actually drop between £2-8bn
Scarletpimpofnel said:
MaxFromage said:
There is 0% chance that any of these changes will affect people obeying the rules prior to the announcement.
As an example, there's a reason why CGT is chargeable on the date contracts are exchanged and not completed.
But isn't that a good example of a tax that is retrospective?As an example, there's a reason why CGT is chargeable on the date contracts are exchanged and not completed.
For example if I owned a second house for ten years and it makes say 5% capital gain per year, then if Labour put up CGT on 1st Nov and I exchange on 2nd Nov then the new rate applies retrospectively to my entire gain that has built up over the previous ten years. As far as I am aware, the old CGT rate doesn't apply to the change date then the new rate thereafter so the new rate is applied retrospectively to all gains to date?
Personally have a bee in my bonnet about CGT as you pay it even if you have made a capital loss due to inflation over those same years.
That's why you don't owe any tax if your second home doubled in value, then halved in value before you sold it.
Edited by 98elise on Monday 16th September 13:09
Muzzer79 said:
It would be highly unusual to change the rules retrospectively and punish those who took rate relief in good faith, only for the rules to change
There’d be an uproar
They gave warning of tax on school fees & for something as regulated as pensions there must be some legislation somewhere which means an overnight change can't happen. There’d be an uproar
For those that are eligible to take the TFC now, i cant see that changing.
They will likely however target those that presently can't.
Scarletpimpofnel said:
MaxFromage said:
There is 0% chance that any of these changes will affect people obeying the rules prior to the announcement.
As an example, there's a reason why CGT is chargeable on the date contracts are exchanged and not completed.
But isn't that a good example of a tax that is retrospective?As an example, there's a reason why CGT is chargeable on the date contracts are exchanged and not completed.
For example if I owned a second house for ten years and it makes say 5% capital gain per year, then if Labour put up CGT on 1st Nov and I exchange on 2nd Nov then the new rate applies retrospectively to my entire gain that has built up over the previous ten years. As far as I am aware, the old CGT rate doesn't apply to the change date then the new rate thereafter so the new rate is applied retrospectively to all gains to date?
Personally have a bee in my bonnet about CGT as you pay it even if you have made a capital loss due to inflation over those same years.
98elise said:
It's not retrospective. Your liability for tax comes at the point you crystalise the gain, not when the gain occurred.
That's why you don't owe any tax if your second home doubled in value, then halved in value before you sold it.
Agreed. What can't and shouldn't happen is for you to commit legally to something (sale of property, pension contribution etc) and then the rules change on that retrospective transaction.That's why you don't owe any tax if your second home doubled in value, then halved in value before you sold it.
Edited by 98elise on Monday 16th September 13:09
Scarletpimpofnel said:
For example if I owned a second house for ten years and it makes say 5% capital gain per year, then if Labour put up CGT on 1st Nov and I exchange on 2nd Nov then the new rate applies retrospectively to my entire gain that has built up over the previous ten years. As far as I am aware, the old CGT rate doesn't apply to the change date then the new rate thereafter so the new rate is applied retrospectively to all gains to date?
This example is why I think they won't bring in a new CGT rate on the day, because whilst not legally bound to complete a transaction (such as a house sale), it could cause some individuals serious issues, losing money if they don't follow through, but also potentially leaving them without the means to pay the tax. 2025 or the new tax year would be my guess.Simpo Two said:
Heard today that the 25% discount on council tax if you live alone is possibly for the chop too.
Hitting widows and single parents. Analysis carried out by the Tax Payers' Alliance said:
- Removing the discount for single person households would represent a £5.4 billion tax increase affecting up to 10.3 million households.
- £1.9 billion of this tax increase would be on pensioners aged 66 years and older.
- £983 million of this tax increase would be on single parents with dependent children.
Source: https://www.taxpayersalliance.com/briefing_single_...- £1.9 billion of this tax increase would be on pensioners aged 66 years and older.
- £983 million of this tax increase would be on single parents with dependent children.
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