Feel free to skip one more pundit’s view of the Budget if you’ve had enough. I’m not claiming to be John Maynard Keynes. This is just how I see things.
When asked why he robbed banks, the US heist wiz Willie Sutton said: “Because that’s where the money is.”
Those hit by what passes for wealth taxes in Labour’s October Budget should sigh and say the same.
Yes, capital gains taxes have gone up a little. But entrepreneurs and investors with money to spare outside of tax shelters – or the gumption to start a business – don’t do it for a few percentage points of tax arbitrage versus income tax. We do it because the £760,000 you’re left with after a now-24% levy on every £1m you make in gains is still life-changing, compared to the average UK salary of £36,000 a year.
No, you soon won’t be able to pass along a multi-million pension pot to the next-generation tax-free.
But the state doesn’t provide tax reliefs for pension savings so that your kids need never work again. It does so to encourage you to save for a time when you can’t or won’t yourself. Scrapping the Lifetime Allowance for pensions doomed the IHT ruse, and the trade-off is a sensible one.
Higher stamp duty when you buy a second-home or investment property?
Well I don’t like transaction taxes on principle. But if we’re going to have them, then at least this targets the pointy-end of the property market.
Reversing the 20-year advance that landlords made versus first-time buyers continues. With house price to income ratios still off the charts and buying in the South impoverishing-to-impossible for most young people without a suitcase of cash from mum and dad, I’m at peace with that direction of travel, too.
We tried the rest, now here’s what’s left
Real wage growth in the UK has been flat since the early 2000s. Near-zero interest rates for more than a decade after the financial crisis only inflated the wealth of those with assets – even as the bottom half that relied on lowly wages or state benefits saw their standard of living go nowhere, before the post-Covid inflation shock squeezed them for what was left.
If you’re really upset by Rachel Reeves’ Budget then you’ve probably either done very well – relatively-speaking – for the past 15-20 years or else you’ve been in denial about the state the UK is in. Count your blessings.
I’m fully aware that Monevator has wealthy readers and we’re generally pro-capitalism and getting ahead around here. So this isn’t a sermon that’s likely to have our parishioners throwing their hats into the air.
But a reckoning was overdue and here it is.
We need to manage the UK as the middle-ranking mostly pretty poor country (judged per capita) that it now is. Not pander further to the fantasies of post-2016 populism.
Some friends of mine bemoan a return of ‘the politics of envy’.
But I just see a return to the politics of reality.
A B- Budget
This was not a perfect Budget. Not even judged by my standards, which is akin to judging how well an ambulance crew performs when it arrives to find the patient already blue on the floor and gasping.
The biggest tax-raising measure – the hike in employer’s national insurance – can only hurt growth in itself, even if spending money had to be raised somewhere to stave off worse. At the margin it will make the young and low-skilled less employable.
Hospitality and retail will suffer. And personally I wouldn’t be taxing jobs harder with a potential AI revolution at the door.
But income needed to be found. This country couldn’t take another round of austerity, even if it had voted for it – which it didn’t do in voting for Labour, or for Johnson years beforehand. To get itself past an electorate either unwilling or unable to face facts, Labour had sadly boxed itself in with red lines around the other big revenue raisers. So here we are.
Even with the tax hikes, Reeves’ additional borrowing has slightly rattled the gilt market – although I judge much of the fairly modest rise in bond yields we’ve seen is ongoing recession risk being taken off the table in the US, with knock-ons around the world. I see the Budget as only adding a kicker.
So it’s far from another Disastrous Mini-Budget.
However it is a bit of Show Me The Money concern.
Paying for that protest vote
Everyone sensible knows the UK needs growth. The State needs it, and we need it in our pay packets.
Neither I nor the OBR thinks this Budget will do much for growth over the long-term. The latter forecasts a little boost upfront and then if anything a gentle decline in the long-term.
That’s not good enough.
But again, what’s the alternative?
The UK electorate voted to make itself poorer in 2016, rightly or wrongly. That bill – plus the same for preventing a potential depression during Covid – has come due. Decisions have consequences.
Even if you don’t agree with Goldman Sachs, the OBR, and other mainstream economists that leaving the EU is indeed on its way to costing us the 4-5% hit to GDP that was predicted and is playing out, not even the lunatic fringe can divine any Brexit dividend. Ironically the only reason things aren’t worse economically is because immigration has gone through the roof.
Going it alone could only have boosted the UK’s economic prospects with the deregulated ultra-capitalist ‘Singapore on Thames’ model. Boris Johnson rejected that years before Reeves took charge.
So we’re back to tax and spend – except it’s as much to keep the lights on as to invest in infrastructure.
Still, that’s better than austerity at this moment in time.
Labour’s political opponents have understandably focused on taxes going up after Labour’s election pledges in spirit implied no such thing.
Fine, but firstly their manifesto didn’t add up either. Both sides have seen this country prove for a decade that it will only vote en masse for pretty lies.
Secondly, what would the Budget haters do differently?
Cut services further? Everyone can see they’re falling apart.
Cut taxes to stimulate growth? We couldn’t even afford the last unfunded bung.
Fudge the books by not being frank about spending commitments and promising investment and ‘levelling up’ that was just rhetoric plastered on top of a crumbling national fabric? Oh yeah, we tried that.
I say be careful what you wish for.
You too can be a millionaire
As for our own wallets, well I can still put £80,000 a year into tax shelters – via ISAs and pensions – and I can invest my way to a comfortable retirement without some silly lifetime cap on my gains. The tax-free lump sum was left intact too.
None of the nightmare scenarios came true. Not even flat-rate tax relief.
If you’re a high-earner you can easily make yourself a multi-millionaire helped by those reliefs, without starting so much as a lemonade stand in terms of real risk-taking.
Can any of us – hand on heart – say that isn’t still plenty of room to do well for ourselves?
There was even the rabbit in a hat of the freeze on income tax thresholds being lifted in 2028. A half-boiled bunny for sure, but if I was Reeves I’d have extended them further and not hiked employer’s NI.
As for being clobbered by the supposedly crushing fist of the leftwing unleashed, according to the Budget calculators I’m about £1.36 a year worse off from Reeves’ measures.
So let’s have some perspective.
The actual ultra-left – Jeremy Corbyn and his fellow travellers – have penned an open letter condemning this Budget as ‘austerity by another name’.
First, do no harm
Reeves has not solved anything with her Budget but it shouldn’t make things worse.
Given the rubbish place we’re starting from, that’s no mean achievement.
With luck she’s bought time for a few good years and a fortunate break or two to get the UK economy going again. That might give us a bit more room to be bolder. We’re overdue a bounce.
But I know many of you will disagree, one way or another.
Before we kick things about in the comments, let’s remember Labour hasn’t been in charge for 14 years. Let’s not pretend the UK was humming along before somebody let the long-haired students in to seize the levers of state.
And if Liz Truss is reading, I got some stick for not totally sticking it to your Budget, because you did sort of address the elephant in the room – the lack of economic growth. Unfortunately that message was wrapped in a package as convincing as a man with a billboard crying the end of the world is nigh. Which ultimately only made the markets and the electorate less tolerant of radical action.
No, Britain signed up for gentle decline years ago. The spirt of the 52% is like an old person blustering around a care home talking about the good old days and complaining he can’t understand the nurses’ accents.
Now Barry Blimp is moaning that he has to take his medicine. I’m shocked.
Sorry, but the grown-ups are back in charge. They’re doing what they can, but that’s only so much.
As for the alternative, I’d love to hear a well-argued and costed counter-narrative spelling out a lower tax, higher growth future with a respectable welfare state left intact – as judged by the electorate, not the rich flying by to their private stand-ins. And that’s certainly not coming from the Tory leaders in waiting.
So tax, spend, and muddling on it is.
You’ve read one Budget roundup, you’ve read them all:
- How the Budget will affect you and your money – BBC
- The key changes announced – Which
- Same, but with some political response in the mix – Guardian
- A long link list to articles on every Budget measure – Money Saving Expert
- Same, but more politicised [scroll down past the big pictures] – This Is Money
- The Employer National Insurance hike explained – This Is Money
More Budget opinion:
- Paul Johnson: There are big risks lurking in this Budget – IFS
- Response to the Autumn Budget – NIESR
- Faisal Islam: Where is the growth in Reeves’ ‘Budget for Growth’? – BBC
- Aditya Chakrabortty: At last a government willing to spend, but… – Guardian
- Robert Shrimsley: Goodbye to low-tax Britain [Search result] – FT
- ‘Fixing the foundations’ Budget has done nothing of the kind – This Is Money
- Analysing Rachel Reeves’ Budget [Podcast] – The Rest is Politics
- Delivering a Budget for National Renewal – The 99% Percent
- Ian Dunt: Take stock, catch a breath – Striking 13
- Bart Van Ark: This was not the ‘productivity’ Budget – The Productivity Institute
- Dan Neidle: Agricultural property inheritance relief changes not all that – Via X
- Tim Leunig: There are good reasons for Reeves to raise taxes – Politics Home
Have a great weekend!
From Monevator
How to work out which platform is cheapest for you – Monevator
Capital gains tax in the UK – Monevator
From the archive-ator: Stress management – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK house price growth slows, but stamp duty hike could ‘spark buyer’s rush’ – Guardian
Floored by fees: “My £250 child trust fund is now only worth £12” – BBC
The N.Y.S.E. is getting ever close to 24-hour trading – Sherwood
FCA fines Wise co-founder over tax disclosure failure… – Morningstar
…while Russia fines Google $20 DECILLION, more than global GDP – NBC
Rents are up and down in global ‘bubble cities’ [Infographic] – Visual Capitalist
It’s rare for gold and US stocks to rise in tandem – A Wealth of Common Sense
Products and services
Owning a home in the UK now cheaper than renting – This Is Money
Regulated rail fares in England to rise by inflation-busting 4.6% – Guardian
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Three expert tips for paying for care – Which
Divorcing couples battling over who pays VAT hike on private school fees – This Is Money
How to earn up to £55 by sharing banking data with YouGov Connections – Be Clever With Your Cash
Village homes for commuters near a station, in pictures – Guardian
Comment and opinion
Small wins can add up to long-term investing success – Morningstar
Meet ‘Generation Windfall’, coming to an estate agent near you [Search result] – FT
Overweighting perspective and context in your portfolio – A Teachable Moment
When it’s time to rethink your asset allocation – Morningstar
Before you quit work – Humble Dollar
How demographics can distort economic narratives – Financial Times
Retirement – We’re Gonna Get Those Bastards
How the new anti-obesity drugs could boost economic growth – Faster, Please
Naughty corner: Active antics
US credit spreads are looking ominously compressed – Topdown Charts
The hidden risks of social media to investors – Enterprising Investor
Boeing just raised a whopping $21bn to shore up its broken balance sheet – Bloomberg via Yahoo
The history of Meta [Podcast] – Acquired
Kindle book bargains
I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle
Eat That Frog! Get More of the Important Things Done by Brian Tracy – £0.99 on Kindle
Growth: A Reckoning by Daniel Susskind – £0.99 on Kindle
A Confederacy of Dunces by John Kennedy Toole [Not financial, just a fav] – £0.99 on Kindle
Environmental factors
Budget doubles down on support for EVs… – This Is Money
…but 15th fuel duty freeze ‘utterly nonsensical’, say campaigners – Sky
Nationwide offers 0% loans to improve home energy efficiency – This Is Money
Scientists say climate change made the Valencia floods worse – BBC
This yellow powder captures the same amount of CO2 as a tree – Fast Company
The slow-motion destruction of tortoises’ slow-motion migration – Hakai
Robot overlord roundup
Gen AI can reproduce an image when trained on as few as 200 copies – Fast Company
US election mini-special
Why The Economist is endorsing Kamala Harris – Semafor
A vote for Donald Trump is a vote for school shootings and measles – The Verge
Caving to Trump before he’s even elected – Daring Fireball
Off our beat
IYKYK: when a novel speaks a language only part of the Internet gets – The Walrus
How close were the UK’s hospitals to collapse in Covid? – BBC
Why some nations are built for economic success while others flounder – Humble Dollar
How Las Vegas became – for good and ill – the most futuristic city in America – GQ
And finally…
“The essence of risk management lies in maximising the areas where we have some control over the outcome while minimising the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.”
– Peter Bernstein, Against the Gods: The Remarkable Story of Risk
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Completely agree with your comments and sentiments on the budget. For most of us much ado about nothing, and partially at least corrected some imbalances. As you say I’ve not come across a viable alternative that somehow magically combines lower taxes with better services and growth. I wish it existed.
Mostly concur with your budget analysis, especially around IHT and pensions. I disagree with hitting lower earners disproportionately via employers indirectly though. I think that will serve to ensure the poor stay poor.
The elephant in the room I think is still NHS spending and continuing the bonfire.
I also cynically thought that Reeve’s offer to unfreeze income tax bands inflation linking in another 4 years was quite a rather large slap around the face with a wet fish for everyone – obviously (a) just in time for the next election (b) 4 years of back peddling still available (why even bother promising it??) (c) everyone gets to keep bending over in the meantime. The beatings will continue until morale improves, eh? Either that or she doesn’t seriously expect to still be in #11 by then.
Thanks for the links which are excellent as always and you’ve certainly had your work cut out this week!
The idea that Labour has no real choice in delivering such a high taxing and high spending budget due to Brexit is for the birds.
Wage growth was low well before 2016, the misallocation of capital due to artificially low rates has also costed the economy, including misallocation of spending by previous governments. Look at public sector productivity ?
Look at high energy costs ? The ££ spent on recent renewables subsidies i.e. AR6 and the exorbitant costs to keep gas fired plants on standby? Increases costs throughout the economy.
Plenty of leavers to pull without going back over the Brexit ground, yes of course it’ll disrupt trade – withdrawing after 40+ years of closer economic integration will do that – but there are many things within UK control that successive governments have chosen not to do.
Mostly agreed that this budget was not much about real change and that is mainly down to there being little wriggle room, given years of the rulers leaving the nation’s wealth in the pawn shop. Financial bleeding from both feet between the brexit and covid corruption self-sanctions doubled down on the losses, so the country is not bankrupt suddenly, there was a long period of gradually before that. So as you conclude (no doubt unpalatable for the empire-loving generation) the UK is at best a struggling middle-ranking country now and the next responses will determine which way it goes.
Sadly, on that note, massively expensive legacy nuclear capacity was justified as a deterrent to being attacked, which a non-belligerent country could use to just pay for a defence force from then on. But as the ‘~£3 billion per year for as long as it takes’ allocation shows, even as the taxpayers have to tighten their belts, forever wars with no relevance or benefit to us are the priority. (No referendum on that though)
The NI thing was cleverly implemented in my opinion, by increasing the rebate for hiring staff. My business which hires 2 staff on decent salaries + 2 directors on minimum wage will actually be a few thousand better off than before, though after 5 staff total it heads in the other direction. Not a bad trade off in my opinion (and manages to catch the “single employee” corporations too, which is fair).
Mostly I’m relieved they didn’t touch pension tax handling, and stunned they didn’t slash ISA allowances. If I were chancellor (and less self interested) those would have been on the block…
Excellent work,, Thank you!! Genius quotes “We need to manage the UK as the middle-ranking mostly pretty poor country (judged per capita) that it now is.” and “Both sides have seen this country prove for a decade that it will only vote en masse for pretty lies.”.
Great analysis and agree most of those seeking FIRE should be mighty relieved that the Budget wasn’t much worse, given the huge sum Reeves needed to raise to cover the economic mismangement of the last lot. She has sensibly stated there will not be another Budget until next Autumn so we can breathe easy for another 12 months. Noteworthy that most of those complaining are at the very top of the wealth distribution which I suspect is exactly what was intended.
@jds247. Agree the NI changes were cleverly implemented – also in a small business and our NI bill will fall due to the huge rise in Employment Allowance. So in some ways the new system is now more progressive.
The problem is the mounting/runaway debt crisis which no one talks about
The populace is still not ready for the required adjustments to correct this situation so politicians keep kicking the financial debt ball down the road
Are we ready for Argentina type actions which seem to be working in that country admittedly from a much worse starting point?
It would be sad if it actually has to be a financial crash that brings people via their politicians to a sense of financial reality-ie you can only keep spending more than you earn for a finite length of time before your debts become overwhelming
xxd09
I can’t say I’m enthusiastic about paying increased rates of CGT on a nominal gain on disposing of an asset that’s worth less now in real terms than when I bought it.
Surely if there was a tax that needed to be reformed and could actually help to generate revenue, it would have been a review of council tax. Lower priced bands could have been left frozen or areas deemed deprived or where house prices have not risen at a level relative to the South East could have seen a fall, while more expensive bands seen a lift. This could then be used directly for local services and fund city/regional mayors and also show that more resources are being raised locally and spent locally.
I agree the IHT on pensions thing is justifiable, but it still hurts!
I have formulated a work around though which also solves the CGT problem and will start to enact it this year.
Love the recommendation for ‘Confederacy of Dunces’ – it’s a great book that is long overdue a re-read!
Might want to check the spelling of the link though @TI
(A general comment rather than this article specifically)
It’s easy to say “the UK is in decline, I want to move” – and plenty of people have been in recent months, indeed since Brexit. But where to move to – is there anywhere better? Obviously this depends on personal factors too. But I’d love to see some pieces going into this more, discussing specific places, if you don’t consider too far outside this site’s scope!
I largely agree, although insisting that the national insurance increase be paid by GP practices and care homes and the like is a big mistake. I’d anticipate a U-turn if this were the Tories of recent times. Not sure if this government are inclined to react to public outcry in that way though.
I think you know I don’t agree with all of your comments, I’ll add that as a rider rather than rehash the almost decade long argument here.
However, there is a contradiction in what you write above, both Brexit was bound to make us poorer and also Boris Johnson ruled out a Singapore on the Thames free trading nation – that is the beauty of our parliamentary system and the movement of time – anything Boris wanted or didn’t want can be changed.
This budget wasn’t ‘grand’ which a lot of people were expecting from a first budget. But between the budget and the signalling between the election and now I think it’s signalled some significant direction changes, which will mean the economy will be different in five years as these incrementally ratchet up. Some of them will be positive – and some of them will lead to more growth.
Ie, almost totally missed, but the minimum wage has risen by 6pc and working age benefits by 1.4pc.
Do that three times in a row and the incentives to work, with all the positive mental and physical (there is after all one ‘health’) benefits attached. There is likely to be less immigration as the notion ‘English people won’t do those jobs’ becomes ‘Oh, English people wouldn’t do those jobs for an extra £10 a month but for an extra £500 over benefits now we’re talking’
That’s important because gdp per capita needs to rise, and ending the farce of paying benefits to deliveroo riders from abroad and benefits to English people for not working is an obvious way the country can get richer
Also, the war on BtL continues apace. It’s been years, and years, but I’m 42 and have friends that earn well, finally now the talk is about ISAs and pensions and tbh BTL isn’t what it was. That means investment in the real economy AND first time buyers being able to achieve dream of home ownership – as immigration falls with more Brits working hopefully that’ll improve things
All in all, there are levers to pull – and this may have been the firing shot in pulling them – incrementally. I’d prefer Nigel to be in charge but I think it was an ok budget for growth
Growth only comes by getting Brits into work.
I did nothing and I’m not that unhappy. CGT will hit me but I’m not crying.
But what was amusing was the Daily Mail publishing two or three articles a day in the run up with panicking suggestions to take pensions now and get the maximum commutation before the evil Chancellor reduced it.
The day after the DM headlines were that people who did this were tricked by the same evil Chancellor who caused the panic
Also – I only learnt this this week – the stamp duty surcharge is on second homes or additional homes. So if you have a second home, sell your own home and buy another home (to live in) it’s not due. Anyone who saves many thousands of pounds via this knowledge please let me know I’ll send you my number to venmo me.
And a quick last one about the 80k (81k if using a LISA?)…
…on this the signalling was stupid. I exceeded my annual allowance in 22/23 but was saved by both (or more accurately either) of the previous two years. Since then the allowance has jumped up 20k and have some additional cash. I am currently not contributing this to my pension because I worry they may change the annual allowance in the future and I’ll need the excess this year to avoid a charge. Or they’ll introduce a lifetime allowance. Or they’ll raise the age I can get at it (whilst 58 isn’t old by any means I mean if they tinker and put it to 70)…
…must be millions people up and down the country not investing in pensions because of their stupidity in signalling changes
Good points and analysis, as usual @TI!
@TA: thanks for the amazing post on how to buy inflation linked gilts. With 2-year yields going up on Thursday and the market expecting higher inflation next year after the budget on Wednesday, I got myself a bit of a bargain on Thursday! Cheers 😉
@all — Thanks for the comments. Going to let the conversation breath. Will just expand below a bit on Brexit as I really didn’t want to bog my intro down with it again. I understand we’re all fed up with it, even if that doesn’t wish it away! 🙂
@SurreyLad — Yes I agree Brexit isn’t the whole cause of the state we’re in. I didn’t say it was. I said our malaise began since the early 2000s.
Brexit was a folly that the country couldn’t afford. The US might be able to afford Trumpian tariffs, say. But we needed everything to go right to squeeze as much as we could from our dehydrating lemon.
An analogy might be Germany, which could afford some more leftwing policies and so on (and trains that ran on time! 😉 ) until Russia invaded Ukraine.
Europe can’t afford to be silly anymore, the world is too ruthlessly competitive and the low-hanging fruit was long ago picked. The US has transitioned to the new era, thanks partly to its hyper-scaling tech platforms that arguably its culture supported the creation of. (The old culture, not current culture-wars culture).
We haven’t got that luxury. (Well the French and Italians have Luxury brands, but we have… struggling Burberry and Mike Ashley!)
If you believe, as I do, that Brexit has probably cost us about 5% of GDP (not least taking into account what we might have done if we’d focussed on other stuff, as well as all the frictions etc) then that’s £35-40bn of lost tax revenues I’m afraid.
Do I think that’s *exactly why* Reeves just raised taxes by £40bn?
No, but it’s certainly suggestive and in the mix.
Unfortunately I can’t see me not mentioning Brexit for at least the next decade. I know it’s frustrating and boring, but my stance has always been that it’s a slow bleed/headwind, and the nature of that is, as I said from 2016, that the costs will compound.
One thing we all know about around here is that compounding adds up mightily over time. 😐
Also – if Trump wins and Elon gets his way, the govt in the states may employ roughly a third less employees than it does now ( Twitter is down 65pc). If that happens, should be a lot of people in non jobs in ‘our’ NHS finally get the boot. Along with local councils etc. let’s not pretend everyone in the NHS works in ambulances or A&E – replace a few fax machines and receptionists for modern technology, remove all the diversity coordinators and likely have a better service for less money.
Get Brits back to work, drill baby drill, and slash the cost of the nhs.
@Southbank #13
This is much easier when you are younger. Obvs because you have the dynamism and flexibility of youth, and you have a less complicated life, as Mark Zuckerberg observed in his “Young people are just smarter” quote. But no man is an island. Your human relationships matter, just not in a financial sense. I think there are plenty of sites on geo-arbitrage and digital nomadism, and on strictly financial criteria this can work very well.
I’ve forgotten who it was on here who observed in the comments what is the point of achieving financial independence if you have to move away from family and friends to do it? There’s a tremendous variation in the value of these non-financial connections to different people. But I agree with his sentiment. Finance is but one aspect of living a good life, and it would be a shame to win that particular battle and lose the living a good life war.
It is far less amenable to generalisation because it’s very multivariate. And no, AI isn’t going to give you the answer, TBH anyone who trusts anything AI tells them deserves all they get! Sadly this is one conundrum you have to compute yourself, on manual, and with input from any significant other people in your life.
My sense is that this/our community is rather relieved it’s dodged a bullet…for now. So sleep is easier for now.
Managed decline of the UK has been deemed simply too unpalatable to be told to the electorate since WW2. How many times do we hear “sixth richest country/economy ” and so on. Never the more honest “25th richest country per capita using purchasing parity and falling”. And it’s not because that’s a complete mouthful.
So for that reason I’m not particularly optimistic that there will not be Willie Sutton style raids on where the money is. Especially when expectation gap of for example the UK health service and what the UK can actually afford is huge. Pure entitlement IMO. In the end healthcare will be rationed in some shape or form because we can’t afford 1st class healthcare and all the other 1st class public spending wishes.
It means levelling down in most respects then it will only be a matter of time before they follow the money that’s left to find ..any money. Sounds depressing really. Levelling down because large tax rises with no/slow growth is levelling down pure and simple.
So it wouldn’t surprise me if taxes on eg all housing equity principal residence or not, removal of tax free this and tax free that are part of the inevitable tax collection mission creep. After all the excuse “what choice did we have” seems to have passed without much protest and you’ll be hearing that a lot more often I suspect.
On a brighter note I have also made my rolling index link gilt ladder.
@Naeclue (#11) – If you don’t mind sharing the details of your plan, I would be very interested on reading about your ideas. Perhaps I could try something similar 🙂
I do expect my children to do well without any inheritance windfall from us. Just as I have done well myself without ever receiving any inheritance. I have even told my parents, I expect them to please just carry on living indefinitely and that I do not want to receive any inheritance from them.
On the other hand, if I can help my children a bit more without them expecting it and counting on it, I think it can only be a good thing.
@TI – sensible analysis I think and thanks for the links, I enjoyed Ian Dunt’s take on it. After all the press hype it seems like quite a balanced approach to me.
@Southbank, Ermine – I did exactly this when I was a new grad in the post 89 recession. Of my class about half went to Hong Kong and most of the rest including me went to Germany. It was of course easy to do, all the Single Market privileges in my case, full professional recognition etc. It was just a matter of packing a rucksack, a bit of language training and having about £1k in ready cash. I ended up getting a job within a week. Now at the other end of my working life I’m actively looking into moving elsewhere but its a much more weighty decision to take when you have even modest assets ie house, pension ISAs etc. Still, I’m looking forward to a ‘research’ trip in Spring..
@BBlimp #15 but I’m 42 and have friends that earn well, finally now the talk is about ISAs and pensions
@BBlimp #18 Or they’ll raise the age I can get at it (whilst 58 isn’t old by any means
Aging 16 years in one day is a tough gig
This budget is a significant rise in public sector spending. About 4% in real terms. That will put UK public sector spending in the mid 40s as a % of GDP. Right in the middle of the pack compared to our European peers. If this doesn’t deliver good public services – and I very much doubt it will – then there can be no further excuses from the left that we are underspending. Perhaps, we can finally switch to understanding why the public sector has such incredibly poor productivity.
At a personal level, the budget was mildly negative. I have very little outside tax wrapper that is vulnerable to CGT. I have a few houses but as a percentage of net worth it’s <5%. Making pensions subject to IHT is also not a biggie. I plan to transfer 80% of net wealth to my kids in their 20s. The remainder we may/may not spend depending on how asset returns pan out. We'll re-sequence to optimize IHT but if it gets caught, it gets caught. If we somehow live to 100, my children wouldn’t get that inheritance till they were 60. Bit pointless getting it that late.
If you wanted to reverse per capita income on PPP falling you could
1. Expand LHR, Gatwick, London City
2. Drill for shale
3. Allow housebuilding even when it interferes with habits of newts
4. allow the London sphere and don’t worry about ‘light pollution’
5. Examine why HS2 cost so much more than it would have in France, let alone Shenzen. If we want to be travelling on the Elizabeth line rather than the northern line, we need to go through the issues with planning and growth, unpick them; and get building.
Sadly, the Tories and Labour are two sides of the manage decline coin.
But things aren’t as bad yet as they were in the 70s, trust me when they are, someone will come in and do all the above. It’ll be a shock to all of you that don’t realise we chose managed decline with every silly growth defeating measure we employ
@Tom-Baker Dr Who
>I do expect my children to do well without any inheritance windfall from us. Just as I have done well myself without ever receiving any inheritance.
I don’t think this is necessarily a good comparison. Compare and contrast the amount of money your peers inherited with the potential inheritance of your child’s peers.
@BBlimp — Given you’ve been wrong about pretty much everything for the best part of that decade that we’ve been debating — quite literally, from the outcome of Brexit to the kind of Brexit we’d get to Liz Truss — then perhaps you might first put your hands up for the damage your decisions have already caused to the UK and say “I got it wrong” before lecturing us that “It’ll be a shock to all of you”.
Basically we’re indulging you here. Wake up man! 🙂
Was happily drawing my retirement income from tax free ISAs and keeping under the IHT limits but the IHT pension changes in the budget mean a sudden potential £200000 IHT bill
So…….will continue with the ISA (no tax) withdrawals but will be running down my ISA totals to a lower level than originally planned
Spending money just to save tax is always at the back of my mind as a not a sensible policy but……..
Potentially must get rid of £200000 over the next few years over and above current income requirements-now aged 78-time is running out!
Any suggestions?
Gifts,buy new cars,up grade those holiday hotels,charities etc etc
xxd09
@remoaner – is that a joke? I’m 42 NOW, currently I can get he pension in 16 years, and I’m worried that during those 16 years the rules might change. You seem simple.
@TI – would you like to comment on the growth suggestions or just continue ad hominem. What exactly is unlikely to be pro growth about expanding the airports for eg?
@xxd – live another 4.5 years ?
@xxd09 – ‘all of the above’ I would say! I’m imagining you as some sort of Brewster’s millions remake.. great problem to have. You could have a lot of fun.
Just want give @BBlimp some support here. You are not alone.
I really like your writing and insights. I’m new to having money and came across your site in an effort to educate myself. I also agree with your viewpoint in this article.
@bblimp — is not ad hominem in this context. You said Brexit was the bright new economic future and derided remoaners etc. Brexit has at the least achieved nothing and all sensible economists agree there’s been a substantial cost.
I said it’d slow growth and hit us all. It has. See the budget. Thanks for the Brexit share of the tax hikes to achieve nothing.
I’m not going to debate your daring proposals to expand loads of airports and pretend climate change isn’t happening. It’s the same facile Blimpian rubbish that brought us Brexit. The world is complicated.
I’ve wasted far too much time over the years arguing with you guys that yeah, the world is not flat.
Policing this thread to keep comments on the Budget topic from here. Cheers.
If we are c. 4% of GDP worse off as a result of Brexit (btw what does that mean in real money?) does that mean that if we’d remained in the EU our economic performance would have been up there with the US and China? And would have bitten all other EU countries into the dust (since we aren’t that far off now)? And you really believe that?!?
Also btw, I am already seeing businesses planning to pass on cost increases as a result of the budget that exceed those implemented during the post COVID /Ukraine/Suez period.
@David — You write:
If we are c. 4% of GDP worse off as a result of Brexit (btw what does that mean in real money?) does that mean that if we’d remained in the EU our economic performance would have been up there with the US and China? And would have bitten all other EU countries into the dust (since we aren’t that far off now)? And you really believe that?!?
No, I didn’t say that. It is tiresome to have to repeat the same thing over and over again. At least as much as to hear me mention Brexit every three months I’m sure. 😉
I believe that we’re 4-5% smaller in GDP terms. Nothing more, nothing less. That’s about £100bn in real money or about £35-40bn in lost tax receipts to the state. As I said in the article. Which is about the size of Reeves’ tax hikes. Or maybe we could have unfrozen income tax thresholds a few years ago. Or done a bunch of other useful stuff with the foregone money.
Brexit was lost on the reality that economies are complex and fiddly things. Commentary since has proven people still don’t get it even after we’ve seen no dividends, sunlit uplands, booms, resurgent manufacturing, whatever.
We have made our trade terms a bit worse. We’ve reduced skilled migration of the most amendable sort. Companies have reduced (not stopped) investing here to access Europe. These things all add up.
As I linked to the other week and haven’t time right now to do again, the UK grew faster than other EU countries over the time we were in the EU. I can see it’s confusing if someone ignored this reality and believed lies to the contrary pre-vote. But that’s the reality.
We ‘should’ be growing faster than the EU. We should be a richer country than we are now. The flipside of that isn’t a Mad Max wasteland, it’s a slightly less dynamic economy and a more cash-strapped state.
As I’ve written many times, you feel a recession when GDP goes negative to the tune of 1-2%. So 4-5% is meaningful. We haven’t gone negative in the sense that these are ‘opportunity cost’ losses, but we’re feeling it in our relative standing and our ability to live as we did (public services etc).
But again, this isn’t the whole story, agreed. Covid, 0% interest rates and malinvestment, truly terrible political leadership for a few years — it’s all in the mix.
I suggest doing some reading about Dave Brailsford’s ‘marginal gains’. That’s the way modern economies work, outside of war and pandemics.
Sure standing on a box and blustering about bright futures and animal spirits etc can be helpful, but only if it’s accompanied by an underlying reality.
So Thatcherism, say, had a lot of rhetoric but it was backed up by (messy) deregulation. I’m sure in that case the political posturing helped it along.
Economically speaking, Brexit was posturing on the back of a negative development. No dice.
Again, let’s leave Brexit here or it will crowd out the conversation about the Budget. Felt I had to reply to this apparently well-meaning comment but will be more likely to delete from here for the sake of the Budget conversation. Cheers.
I’m a simple minded miner, I part read the book “die with zero” and I seem to remember when it was mentioned when would your kids need help best with finances when they are older and probably settled?40+ and maybe struggled to get there themselves or maybe get something earlier on in life when setting out; I didn’t think too much of it at the time when reading. After this budget I actually now think hmm maybe the author was on to something and a small pile now before any iht and any possible meddling with pensions and tax free limits on savings may be in order.
I think I’ll dig the book out and read the whole of it this time, maybe there is something to learn from a multi multi millionaire after all compared to my modest life savings which I’ve saved after tax and to the rules of the game.
@xxd @miner
Would your kids preferred you spent £200k or they got 200k?
Would your kids prefer you spent £200k or they get £120k?
As someone who simply cannot spend £4 for a cup of tea in pret and likely will never be able to whatever situation I’m in, i understand why you struggle to spend. So maybe you could take them on holiday ? Do up their homes now ? I know part of the holidays may constitute a gift but your parts wouldn’t be !
I wish my parents would spend their money.
We’ve gone from full-fat cakeism to diet cakeism. But cakeism it still is. A year or two of real-term increases in public expenditure is not going to fix over a decade of chronic underinvestment. Maybe the roof will stop leaking for a bit.
@The Investor. I know you don’t want to talk about THAT “B” word as it detracts from THIS “B” word, but I’d feel like the knockee in a game of Knock Down Ginger if I can’t respond on just one point:
“I believe that we’re 4-5% smaller in GDP terms.”
Is that each and every year, or a one-off hit?
@David — Fair enough (but other commenters let’s please leave it here, I already fear the Budget conversation has been derailed given how the comments have trailed off 🙁 ).
To answer your question via a neutral third-party, here’s how the latest version of ChatGPT puts it:
The OBR for one has been documenting this ongoing process and goes into quite a lot of detail, which you can read then believe or disbelieve as you see fit. 🙂
One part that makes no sense in the budget, as the Sky article right points out, is the fuel duty freeze. That would have been an easy lever to pull, with no pre-election commitments affected and much headroom to be gained.
I’m hoping the renewable generation fees will at least move from electricity to gas in energy bills after the electricity pricing review is completed…
> To answer your question via a neutral third-party, here’s how the latest version of ChatGPT puts it:
Come again? “A known inveterate liar with a penchant for making stuff up quoth thusly” doesn’t advance the sum of knowledge one jot.
Perplexity.ai brazenly assured me that the answer to what was the novel in the 1970s that had a young fellow field recording in Paris with a Nagra tape recorder is Gunther Grass’s The Tin Drum. A search of the novel for Nagra came up with a null result. Don’t believe anything that AI tells you. It makes Boris Johnson look like a bastion of truth-telling. The book was probably Odier’s Diva from 1979
I honestly wondered where TI got the 5pc lower gdp figure from – chatgtp. Blimey it’s beyond parody. Completely tragic. Explains so much.
So, so, much.
TI is presumably queuing up to believe covid came from bat markets, Russia caused Brexit, goodness knows what else !!!
Thanks goodness Elon bought Twitter.
@TI, yes, another pundit’s view from you on the budget but one I’ve been looking forward to seeing, along with the perspectives of Monevator readers. Thank you also for all the interesting links this week – and every week.
The budget again underscored how challenging it is to find the best path forward for us in the UK, and how many diverse and opposing views there are.
I think the impact of the budget is different for everyone, depending on one’s worldview, and, from an investment perspective, one’s personal circumstances.
I have for example never had any gains subject to CGT – all our investments are in ISAs and SIPPs.
However, the move to include pensions within IHT from April 2027 is something I need to consider. I understand the rationale behind the IHT changes, and the contrasting moral views there are on IHT. While I appreciate our fortunate position, I still have an obligation to minimise the tax we pay.
We had planned for whatever remained of our pensions on our deaths to be passed to our children, and several charities. Over the years this has been in our calculations and always in the back of my mind. It’s at least partly why I keep on doing ‘one more year’.
Our assets fall into three categories from an IHT perspective: the family home, ISAs and personal effects, and pensions.
Perhaps I’ve invested too much in pensions over the years. You and Finumus have written about being careful not to indiscriminately pour all your savings into pension contributions, but for me that 40% tax relief was just too tempting! Another factor for us, as it has been for @xxd09 and others, is that we’ve never felt the need to have too much house – again leading to us making more pension contributions.
As it currently stands, the house plus ISAs and personal effects would not result in an IHT liability. However, come April 2027, if we combine all three categories, our estate will be liable for IHT.
I’m considering gifting the family home to the children earlier rather than upon death. I’m contemplating @ZX’s (#27) thoughts on the value of providing more financial assistance to the children at a younger age.
There’s a lot to consider in the calculations – gifting the family home and then paying a market-related rental until we move in a year or two, inflating the children’s income during this period, checking if there is indeed no stamp duty on gifting because there’s no remaining mortgage, the risk of not surviving the seven years, etc.
And, of course, there’s always the possibility that the change doesn’t come into effect in April 2027, or that other changes are made before that date that reduce our options.
@ermine — Well I’ve tried explaining it myself and I’ve tried linking to the OBR, Goldman, others, and that didn’t work, so I thought this might be fun. Obviously I vetted the ChatGPT answer before posting — and obviously I posted knowing I was setting myself up for some ribbing. 😉
I would get over this AI FUD thing you have going on personally. 🙂 It’s great for general overview stuff, particularly if you know a subject OR you’re not too bothered about every fact being right. In the first case you can spot problems, in the second case the errors don’t really matter if you want the gist.
I’ll chat to it if I want to learn about a subject as if talking to a once knowledgeable friend with a lapsed memory. I did this quite recently with the European conquest of America. It’s quite funny if you spot an obvious error and point it out. It will always correct itself, but of course it’s all a magic show and a re-weighting. And if you want to break it with logic it’s trivially easy to do so.
The current version is far better than that of a couple of years back, but I do feel they are capping out on the current path. The rate of progress has slowed, but the illusion of intelligence is still more amazing to me than not. 🙂
There’s an evens chance we’re moving mostly away from a search engine paradigm to an ‘answer engine’ paradigm, so at the least good to keep a toe in as I see it.
It’s a painful budget but in my view necessary as we can’t go on with the underfunding and lack of investment in our public services. See crumbling schools, overflowing prisons, highest ever NHS waiting lists, endless strikes, etc etc.
If anything I think they did a decent job of spreading the pain around, a bit on pensioners, a bit on workers, a bit on business, a bit on landlords/investors, a bit on the wealthy. And all within the constraints of the manifesto commitments (sort of). I did work out how much extra tax my employer will now pay in NI for me and it’s quite a lot, so I fully expect a smaller wage increase next year. But it seemed like a reasonable way to reverse some of Jeremy Hunt’s blatant electioneering.
I’m glad they didn’t touch the ISA allowance and only made minor amends to CGT. I feel like they could have been bolder with regards council tax, but maybe that’ll be after the next election maybe, when Labour are more trusted on the economy (assuming things go okay from here). Now they’ve got the unpopular stuff out of the way it should be easier over the next 4 years to give a good news story of how they’re turning the economy around, much like Osborne and Cameron did from 2010 to 2015.
Some of the stamp duty changes are a bit mad, ie allowing the thresholds to reduce in Apr’25 and increasing the additional home charge to 5%. (The latter will only bring in £200-£300m tax revenue so just seemed like a bit of a swipe at 2nd home owners and landlords, still they didn’t increase CGT on property at least.) Will be interesting to see how those changes affect the housing market and rental supply over the next 6-12 months.
All in all though it’s good to have adults back in charge actually trying to improve the country rather than the Tory Brexit psychodrama, the neverending Boris scandals, or the Truss/Tufton Street madness. Now we can just laugh at Badenoch when she says crazy things and not have to worry that she’ll actually be able to fulfill any of it.
@BBlimp — If you don’t know where I got the 4-5% figure from then you (a) haven’t been following the news (b) haven’t been reading the links I sent you.
Okay, let’s put the ChatGPT thing to one side.
Here are those arch liberalists, Goldman Sachs, earlier this year:
https://www.cnbc.com/2024/02/14/brexit-has-sliced-5percent-off-uk-economic-growth-goldman-sachs-says.html
Google around. It’s an easy question for ChatGPT to answer because all sensible reports find roughly the same thing.
I was only replying to @David as a courtesy for the reasons he gave.
Enough Brexit for this thread please.
@24Tom-Baker Dr Who, my work around involves gifts of capital gains bloated ETFs to charity and is best explained by an example. Let’s say I take £250k from my SIPP and give £200k of ETFs to charity. The taxable amount is reduced by £200k and then by about £12.5k by the personal allowance, leaving about £37.5k. Tax on that at 20% is £7.5k, so I have about £242.5k net cash from the SIPP after the tax refund comes through. Put £20k into an ISA, then live off and distribute the rest. There is no CGT to pay on the gift of the ETFs to charity.
If this process is repeated regularly over a few years the gifts to relatives would be considered gifts from income instead of PETs.
The original plan for our SIPPs was eventually to take an income from them at basic rate, topped up by ISA withdrawals once our GIA investments were gone, and then to leave the SIPPs to relatives after we die, but there is little point following that path now. Instead we will make large withdrawals and distribute surplus income to 15 nephews and nieces. They are in their 30s to early 40s and most of them are sensible with money now, a few not. Only a couple are high earners and the money will be very useful to them. Likely far more useful now than in 25 years or so.
“Britain signed up for gentle decline years ago”
Yes, that’s the reality the UK has to face. It’s all about access to cheap energy and the UK no longer has that. There’s an economic inflexion taking place, but nobody (especially politicians) wants to face the cold hard facts of what such a phase transition entails.
https://surplusenergyeconomics.wordpress.com/2024/11/02/292-fake-it-till-you-break-it/
@TI “Policing this thread to keep comments on the Budget topic from here.”
Thank goodness for that, I don’t come here to read Daily Wail claptrap. I was beginning to think someone might pop by to say that Brexit failed because of the millions of trans Muslims arriving on little boats, being given council houses, claiming collosal benefits, breeding like rabbits, raping our women and stealing our jobs.
It costs a lot to mend public services after 14 years worth of them being run into the ground. I’m not sure that increasing ENI will be the way to improve growth and the projected figures from the OBR look underwhelming at best.
As for productivity in the NHS – loads of capital investment needed in diagnostics – things like scanners many of which are currently past their sell-by date and constantly breaking down. It’s also difficult to treat more patients when the building is falling down and they’re presenting as older, sicker with more co-morbidities and can’t be discharged because to all intents and purposes social care has been left to fall apart. As for getting rid of loads of diversity NHS staff – there aren’t that many according to official figures and they are a current legal requirement arising from the Public Sector Equality Duty (PSED) – something that’s never mentioned in the red-top comics.
Following all the precursive doom-mongering, relieved that the somewhat vanilla (from a personal finance perspective) budget seems instantly forgotten with the slightest flutter of the other ‘B’ word red-rag. Although not so much into the politics, there doesn’t seem to be much that’s going to start swinging the ship round. At least they haven’t scuttled it.
The Budget ? It proves that turkeys do vote for Christmas. The fault lies with the hopeless previous Conservative administration however.
If I had a plan to build say more schools and hospitals and wanted you to pay for it how would I go about it ? Would I assess where they were needed, get them designed, get the approvals and permissions in place, get initial costs, put them out to tender…. Then I would need the money. Takes a while.
Or I would ask for the money now, without plans or numbers, and say trust me. I won’t spend the money on anything else while I am waiting.
At least I know when I am being plucked. After years of experience so I should.
I concur that, on the face of it, those of us who keep things simple, with a single home, pension – such as a salary sacrifice DC and/or SIPP, and wrap any non-pension wealth in ISAs should probably breath a sigh of relief.
TI makes a good point that we can still sock away £80k pa in tax advantageous accounts. They haven’t even hiked council tax – I am sure this will come for the top 2 or 3 bands in the next budget.
Any pay rise next year is likely to be reduced by my employer to compensate for their NI hikes, but that seems to be the worst of it – although this is with a very narrow personal finance focus.
I might have been more annoyed if I was planning to use my pension to dodge IHT, as an irate Labour voting colleague was.
“But aren’t you happy it is going to the NHS?” I stopped myself from saying.
Will leave the political commentary at that, but keen to hear if people think any of the leaked household wealth taxing policies the press made such a fuss about will make an appearance in next year’s budget.
@TI
Not a reply on Brexit, but on AI……that was a really clear well explained reply, that meant I did not have to hunt around for something as clear.
I was speaking to a business owner the other day who when WFH uses some readily available AI (not CGP) to bounce off ideas as if they were a very knowledgeable work colleague – and gets a consistently better response. Which heralds businesses being managed in the future by one person + AI ….
Bottomline is that this budget – it’s priorities for investment and how it wants to allocate the cost for them – will all be rendered obsolete by ‘Events, dear boy, events’. It’s hard to imagine that many of the forecasts beyond 25/26 survive contact with the global economy. Moreover, the forecasts assume levels of public sector productivity growth that look heroic. Health/Social care generating 2%/annum? Yes, right!
One of those events happens on Tuesday and it will have a far greater impact on UK finances than this budget. The big three economic blocs – US, Europe and China – will decide how our economy performs and whether we can afford those public services. We’ll just have react, as best we can, to their decisions. That’s the nature of being an relatively small, open economy on the periphery of major regional blocs.
I accept the IHT on pensions, but I do find it irksome that the billionaires who have snapped up farmland have only been asked to pay 20%, but us relatively little guys are being charged 40%.
@Southbank 13. Re moving. Don’t forget a 10 year rule is coming into effect next year. The whole thing is beginning to get a flavour of serfdom.
Just a quick note on my comment about the Daily Heil encouraging people to take comutation before the budget. Their headline “I took money out my pension before the budget.Can I put it back in”
https://www.thisismoney.co.uk/money/pensions/article-14029673/I-took-tax-free-cash-pension-Budget.html
“ with a potential AI revolution at the door.”
I’ve been pondering this for a while in a different context. Warren Buffett has sold some of his Apple shares and is sat on pile of cash. Because: everything is too expensive. Prem Watsa is doing the same., citing the same reason.
In fairness, the All Market index does appear to have gone up a bit since 2008, and tech stocks seem to be doing rather well.
What do you think? Is this reflective of the AI revolution or just another dot.com bubble? I recon, differently from flickr, meebo, wikiyou, mahalo and bebo Apple, Google and Amazon have a thing called revenue.
Of course post-COVID money printing has helped the equity valuations, but now that the money is printed and can’t be inflated away (not without a change in government both here and across the pond, it appears) then it must be here to stay in the form of capital… but does that explain all of the gains? And if not, then is the rest of it irrational exuberance? And if so, then how much? and if it’s a lot, what should I do about it? And should I really be paying out good old Warren for managing a money market fund?
I hate timing the market, mainly because I’m very bad at it. The only time I called it right was March 2020 (buy! buy it now!), and even then I was hobbled by insufficient cash to “clean up”, as the kids these days call it.
Thoughts?
Overall seems a fair budget and personally I’m happy with the IHT changes.
I wonder if the IHT change could have a big impact on some people? An unmarried / not in a civil partnership couple in a reasonable sized home and savings would likely have managed to keep under the IHT threshold.
But with pensions now included this could easily push people over the limit meaning getting married / entering a civil partnership could be a useful tax planning option / investment to consider for anyone now impacted.
On the AI discussion – I’m a big user of ChatGPT for work and personal – it’s useful to check details with – although it’s not perfect so it pays to check.
A recent example was seeing which broker was cheapest following @TA’s recent article. I put the details noted in TA’s article (portfolio amount, monthly trades, etc) into ChatGPT, asked it to check a range of brokers, and it did all the leg work.
> ChatGPT
Is there a decent guide written by man or machine in how to use this and for what sort of queries? Whenever I go anywhere near it the answers fall into Pauli’s ‘so bad it’s not even wrong’ category. It lies to me with impunity and is delusional enough to appear permanently on acid.
@all — Really great discussion, loving the range of thoughtful view. Cheers!
@ermine — Me and @TA both thought this was very good:
https://www.profgalloway.com/what-does-ai-think/
Hope it’s helpful.
I’d say don’t treat it as the font of perfect knowledge. (We’ll really be screwed if/when it is or we can’t fool it at least, anyway 😉 ) More as I said like a knowledgeable but forgetful and maybe a bit braggardy/bluffery friend.
I’ve emailed you by the way to the SLIS address about another matter.
I feel this Govts further rise to CGT is massive – 8% more on lower rate and 4% on higher rate and this was after the recent Tory rises in reducing the annual exempt allowance from £12300 down to the now pitiful £3000 which was huge enough in itself. “Squeeze you until the pips squeak” comes to mind. Wouldn’t mind quite so much if Tories/Labour ever used it wisely/efficiently and things actually improved – but do they ever actually – not in my experience just more waste/fraud/inefficiency/incompetence/corruption/expenses scandals and the like. A plague on both your houses!!
Some of us do have GIA investments and try to live from them – this is now much harder – as well as all the more CG tax returns being a right old PITA. Can now hardly divest anything much without incurring big tax bill. I use my annual ISA subscription but not working now so can’t use pension tax shelter – except the minimum allowed, which again is a pittance. It may be gains but we already pay tax on the original investment on earned income and then there’s inflation which is not accounted for reducing it more, particularly over recent years. What are they trying to do – stop us investing altogether?
So when you need to sell most years for your income/living expenses and even to do Bed&Isa/small amount for SIPP – it’s a disaster pretty much all round.
We’ve really got a choice of either not selling/letting gains build up even more (or maybe just sell a pitiful amount to diffuse your annual £3k which isn’t gonna make much difference) and taking from say, Isa accounts in the meantime and hoping tax rates are reduced in not too distant future but probably won’t happen anytime soon (and then can’t use your ISA allowance each year either) or sell and pay these punative tax rates to fill Isas and extract living expenses. Seems it will hit those harder who aren’t/can’t work who need to extract regularly.
With regard to Bed & ISA though since the budget, Vanguard’s recent budget article discussed the merits of still doing this/taking the tax hit versus doing nothing. I suppose many will have seen this already but Vanguard say:
“We calculated the potential increase in returns that a higher-rate taxpayer could realise by using bed and ISA every year, based on the new CGT rate of 24%. In our hypothetical example, the investor starts off with both a general account and an ISA, valued at £100,000 each. They invest in a portfolio which returns 5% a year after costs and then sell the investments after 10 years, paying CGT due on the remaining general account balance.
The chart below shows the difference it would make if they depleted their general account over five years (by moving £20,000 a year into their ISA) compared with doing nothing. By diligently making the most of bed and ISA, the individual ends up with £15,304 more, despite holding exactly the same investments.”
This is the article and this is discussed under the heading “What else can I do to reduce my CGT bill?”:
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/what-the-autumn-statement-means-for-you?cmpgn=ET1024UKTLABU0101EN&guid=&nuid=
At least they say that we’re generally better off to still do Bed & ISA and take the tax hit as then protected from taxes in future years – maybe until they next meddle.
@TI (various posts)
Normally I would say just delete BBlimp, however, you name checked him in your post so he had the right to reply. The second best thing is to ignore his ignorance.
@Plague Dr Another reason it may be worth eating the hit w CGT steadily as your capgain seems to add to your income for that year as far as defining your tax bracket.
In many ways Hunt’s original drop of the allowance from 12k p.a. was more significant for me, but the details will vary with the individual situation. Feels strange to think of reversing the old advice to keep income investments in the ISA to booting them out into the GIA and shifting capital growth stuff into the ISA to take their place
@TI ta – at least it diagnosed my usage error. I am not particularly collegiate in problem solving. My mother got my primary school headmaster to take ‘is a lone wolf’ out of my valedictory report. He was right… So I may struggle to use it as thought partner. But it’s good to know the source of the fail. I was/am that nail basher with a screwdriver, my bad 😉
@Mack: “gifting the family home …”: be sure to get professional advice on how to do it in such a way that you retain your Residential Nil Rate Band versus IHT.
“the risk of not surviving the seven years, etc.”: you can buy insurance that would give your beneficiaries enough cash to pay the estate’s IHT if you snuff it early. Professional advice could help you ensure that the insurance pay out was not part of your estate.
I’ve been looking around the web for useful suggestions for fruitful ways of avoiding IHT on our (modest) SIPPs. So far:
(i) Withdraw our TFLSs over three tax years and gift the money as surplus income – that way those gifts are IHT-free on despatch and income-tax-free on receipt.
(ii) Instruct that each SIPP go to the other on death – no IHT to pay on first death.
(iii) Expect to use the surviving capital to buy an Immediate Needs Annuity to help with the cost of “care”; if the annuity is paid direct to the care provider the payment incurs no income tax.
(iv) Since the SIPPs are indeed modest, and 75% of them will be even more modest, the survivor of us will probably need to buy a further INA using money from ISAs. So be it. Maybe we won’t need the survivor to buy care but family medical history suggests otherwise.
@Naeclue (#52) – Thanks! Your charity donations idea is interesting. It doesn’t suit me though as I have no GIA just SIPPs and ISAs. My plan so far is to make large withdrawals and gift surpluses, as you mentioned you will do too after you drawdown all your GIAs.
I think it’s not an awful budget, although could have been better. The increase in employer NIC will hit hard on medium enterprises with tight profit margins. But for businesses with decent margins, there would be scope to carry that extra cost without choosing to hit pay or recruitment by eating into the margin a little, and let’s not pretend that it won’t be a choice if the business prefers to protect the profit margin.
Personally I’ll be affected by IHT on pensions, and as I’m contemplating buying a second property the stamp duty increase.
On pensions I think taking it into IHT makes sense (doesn’t hit the person who built up the funds, tax free on both money in and investment return let’s not forget, and only affects their heirs if the joint estate exceeds £1m). Less comfortable about the double tax potential if you die after age 75: if the fund bears IHT why would beneficiaries also have to pay income tax? They would not on other assets in the estate such as isa funds. There are also some points such as death in service sums from a workplace scheme that ought not to be subject to IHT. I’m not sure if they were intended to be caught (the consultation paper implies they will ) .
@Xeny (#29) – It is not a comparison. It is just an observation of how they performed so far with almost no help from us. It’s also an optimistic hope that this will carry on 🙂
@Nebilon
I guess the rationale is that the pension sum was accrued from pre-tax income whereas other assets, including ISAs, are created/purchased from post-tax income. So, by treating it as beneficiaries’ taxable income transforms it into a post-tax amount in the same way that the original pension owner drawing down would have done.
@dearieme (70 iii & iv)
I don’t think you can use SIPP capital to buy an Immediate Needs Annuity – except of course by withdrawing the capital and paying the presumably large tax bill first.
Thank you @Naeclue, your thoughts in post #52 are very useful.
@Bob #16 said:
“>But what was amusing was the Daily Mail publishing two or three articles a day in the run up with panicking suggestions to take pensions now and get the maximum commutation before the evil Chancellor reduced it.
>The day after the DM headlines were that people who did this were tricked by the same evil Chancellor who caused the panic”
Made me laugh too. Had she said anything to try to calm the panic down, she would probably also have been blamed by them for leaking budget details in advance. (I think I am getting old and cynical.)
@dearieme (70)
Re my comment at #75, I’ve just realised that you are only contemplating purchase of the INA after inheritance of the SIPP proceeds tax-free by the survivor.
Scanning the comments above – I think possibly the ‘ease’ some of you find opening and managing sipps and ISAs and hammering down every little bit of cost may be leading you to believe continuing to go it alone without advice in retirement and death planning is for the best. Might even be you could get one off advice for specific circs if insistent on not getting ongoing advice. I would have thought, in most cases, as we’re talking about in the main £1million (or at the very least £325k) surely there’s scope for an advisor to add value.
@Plague – forgive me for asking but did you max out Tessa/Pep/Isa/ pension allowances on the way up ?
Interesting set of comments both good and bad. My overall impression for me is of a frog being slowly boiled.
@Matt, the left are pro-Brexit, seeing the EU as a capitalist enterprise against the interests of workers. Being anti-Brexit is mostly about arithmetic.
I was surprised after all the kite flying the budget was as reasonable as it was . It will hit me when (if ) my employer sells and my stake is realised by another 4% but that’s about it and that’s 4% of something I’ve never had so I can’t really complain and I still get to keep 76% of it .the pension being included in IHT wasn’t unexpected and is also fair I believe thoughi think the iht limit should be higher (but that’s not borne out by the reality of the countries demographics as shown below) .
As another commentator has said if you’re affairs are simple with isas pensions one property no kids At private school then it can be summed up as ‘move along nothing to see here other than some iht planning’ . Fvlondons article also seems to bear this out. It’ll barely make a dent for him and he’s far further up the wealth bracket .
Also on topic of the country being poor with a few rich people, I took a Telegraph test last night (don’t judge it was a free trial) and with a net worth of £1.2m I’m apparently in the top 2% of the country. Their sources for the data do seem accurate and if so that seems to bear this out (bear in mind that’s across all age brackets and I’m only in my 40’s so the majority of millionaires are likely to be in their 60’s) .
That staggers though doesn’t surprise me .there’s definitely a skew in people’s perception of how wealthy they are (as evidenced by a client of mine with a net worth almost into 8 figures bemoaning Labour coming after the ‘middle classes’) I wish I was middle class !
But if I’m barely affected as one of the 2% then has the budget really fallen on those with the broadest shoulders?
Having run around the Internet………
Pensions are for pensions only
The potential £200000 IHT hit with the new regime is one for the kids to deal with -if it arises-carehome fees?
Small house(£200000) – with rest of investments in stocks,bonds and cash-easily realisable for IHT bills
Kids all financially independent and will get still something quite reasonable as an inheritance
Not going to alter my financial setup at this late stage which is simple and easy for a 78 year old codger like me(and my executors)
Keeping calm and carrying on!
xxd09
I am genuinely interested, to those who say extra taxes and higher spending will just be wasted, how do you propose we fix the problems of: overflowing prisons, crumbling schools, and an ageing population (to name just 3). Is it just better allocation of resources in which case, where do you take the resources from? Presumably you also want to increase defence spending to 2.5 or 3%, so where’s that money going to come from?
As far as I can tell we’ve tried austerity for the last 14 years, we’ve tried cutting back on spending and making efficiency savings everywhere, and what has that achieved? It hasn’t exactly turned the country into a beautiful utopia, quite the opposite in fact.
Hmm. No kids, so while nieces/nephews will get mostly everything they’ve been whammied (hopefully a long time in the future). That said if I have to pay tax I’d rather it be when I’m dead and the treatment did seem unduly generous. If some future government brings us some unforseen economic success then maybe they’ll actually increase IHT thresholds to stop many more estates being dragged in as this change will prompt. Guess I can always draw and gift sometime in my 70s when I have a better idea of where I stand potwise vs the grim reaper.
If anything it’s probably strengthened my resolve to RE. Far better return from the portfolio if I spend it than it gets sucked up by a potential 64% tax hit when my beneficiaries inherit (assuming they are HRT workers when they inherit the SIPP).
@wephway, your ability to follow what is going on is hampered by your dogma, but police/courts/prisons got a 2pc cut. How’s that fit with your comment above?
Labour are taxing and borrowing more, and spending less on some public services.
What are they spending more on ?
State pensions and the NHS
It’s because NHS spending per capita has risen by 2pc in real terms every year since 2014 on average but produce worse outcomes that people are fed up with it. The only people that are pro NHS now have private health insurance, the virtue signalling classes who happy for people to lie on the floor for 16 hours waiting for an ambulance as long as they can signal how they love ‘our’ NHS.
How is it Australia, France, Canada, Germany all get better health outcomes for similar spend ?
The NHS will continue to suck money out of all the other public services and produce similar outcomes – why should the next 14 years be any different to the last ? – so we’ll be stuck in a crazy world where tax can be at highest it’s ever been yet you think there is austerity.
@xxd – I think in many ways you’ve absolutely nailed life – had kids now grown up and don’t want to spend any more money (which has to be a workable definition of rich). Personally I still think you should get advice, see if anything can be done. Let’s face it, you can afford it.
Looking back do you wish you’d spent more in different parts of your life ? Like on family holidays or childcare or anything ?
@BBlimp
Please back up your assertions on NHS spending, and per capita healthcare spending comparison with other countries with data from a reliable source.
Even if real terms spending had gone up, that would be appropriate given increased demand (medicine changes all the time, what can be done done for patients with a given disease increases the bill as do other population factors).
@Fatbritabroad, I think it worth considering the breakdown of the tax increases across those who are financially independent, that might be the top 2%, might be a bit more, I don’t really know. People who (at least) own their own their home outright and have sufficient pensions and investment income to cover their lifestyle. There is a huge range in wealth across this FI group, but it looks to me as though the increase in tax has not been put on those with the “broadest shoulders”. The IHT to pay on pensions is a rounding error to billionaires, as is the freeze on tax thresholds. Billionaires without farms have been asked to pay more CGT, but this is easily avoided by not crystallising gains. Income tax on dividends has not gone up, the capital gain to the date of death is still not taxed, Rate of IHT is unchanged and taxation of Trusts is unchanged. Ok, those with farms will be hit for IHT, but only at 20% and there will be 10 years to pay that. Why not have 20% over £1m and 40% over say £10m?
No it looks to me as though it is the lower end of the FIs that have taken the biggest knocks.
@Alex, or should I call you jr dr Alex ?
https://www.kingsfund.org.uk/insight-and-analysis/data-and-charts/nhs-budget-nutshell
https://www.statista.com/statistics/283221/per-capita-health-expenditure-by-country/
Yes it is shocking.
@xxd – almost loathe to mention this, but there may be scope to upgrade to a bigger house, to maximise the residential allowance (assuming you’re married or in a civil partnership and no other factors at play).
@FatBritabroad
“Also on topic of the country being poor with a few rich people, I took a Telegraph test last night (don’t judge it was a free trial) and with a net worth of £1.2m I’m apparently in the top 2% of the country.”
Not sure on what basis the Torygraph calculates this. The most reliable source of UK wealth data is the ONS Wealth and Assets Survey which calculates wealth on a household basis. Their last release was 2018-20 data (they are struggling with low resources but have told me they plan to release the 2020-22 dataset by the New Year). This is now out-of-date but at that time 13% of UK households had a net worth (including pensions and property) in excess of £1.2 million. The percentage will be significantly higher now due to inflation and asset appreciation.
So even if the Torygraph was trying to measure on an individual (rather than a household) basis, the 2% figure they have given you seems likely to be wrong. Might help explain why the Chancellor’s targeting of those with the broadest shoulders didn’t affect you!
@TI not allowing my response to Alex makes it look like I’m unable to support my claim with evidence. Hopefully he can Google the result ???
https://www.kingsfund.org.uk/insight-and-analysis/data-and-charts/nhs-budget-nutshell
Yes it is shocking. And no, don’t assume we’re happy to continue paying for it.
@BBlimp there really is no need for personal attacks, I could say the same to you about ‘dogma’.
So your answer is we’re spending too much on the NHS and state pensions?
To some extent I agree regards state pensions, the triple lock in my view is unsustainable. However I suspect many (especially in the right wing press) would kick up a never ending stink if the triple lock got taken away, see the reaction from means testing winter fuel payments.
The NHS is complex and I don’t pretend to know the answers there, so you may have a point. I agree some sort of reform is needed and something is going wrong as productivity appears to be falling. Having said that, with an ageing population I expect we will need to keep putting in real terms increases in spending on the NHS for the foreseeable. Whether that’s through some kind of insurance based system like France or Canada (I note you don’t mention the US), or by sticking with the NHS, spending is still going to keep going up.
Regards a 2pct cut on police/prisons/courts, I haven’t seen that anywhere in the news, care to share where you heard that?
@BBlimp — Your response is literally posted above and was at the time you wrote this. Your post went into auto-moderation because (a) it contained links and (b) your posts have been identified by the automatic spam checker as the sort of thing Russian bots etc post I suppose.
Re: your earlier screed today about how ‘sad’ it was that I delete your comments about Brexit, while I’m here let me restate again. Your posts about Brexit add nothing to the site. You don’t bring any value except a ‘contrary’ view which is just standard right-wing talking points. I’ve revealed the ongoing Brexit damp squib-to-real damage over the years by the ongoing statistics. You and your two to three acolytes just talk about censorship and accuse somebody who reads more widely than any of you (see the range of views in the links above) of a blinkered world view.
I moderate this site to keep the comment thread vibrant, in contrast to the unreadable threads elsewhere on the web.
Over the years you’ve demonstrated you sit squarely towards the ‘troll’ end of the comment spectrum, for reasons I feel no compunction to go into here.
I’d happily just delete you until you go away and probably should, but I’m soft-hearted and endlessly optimistic.
Hope this helps.
@wephway
Day-to-day spending on NHS and education in England to rise by 4.7% in real terms this year, before smaller rises next year
Defence spending to rise by £2.9bn next year
Home Office budget to shrink by 3.1% this year and 3.3% next year in real terms, due to assumed savings from asylum system
£1.3bn extra funding next year for local councils, which will also keep all cash from Right to Buy sales from next month
https://www.bbc.com/news/articles/cdxl1zd07l1o.amp
@tortoise, @alex
I might be easy to dismiss – but when Wephway is questioning NHS productivity it’s time you guys realise the public has woken up to the fact the NHS is run poorly, for the benefit of the staff, and people are noticing.
I think the title of the article sums it all up very well. Unsurprising in my view that the budget itself felt like a bit of a nothing burger, the angst in the build up was clearly overbought. As ever political philosophy will be a source of endless debate and conflict but from a purely practical personal investing POV the outcome was broadly a relief.
The political debate doesn’t need stoking anymore but I can’t help but vent at the triumph of ideology over pragmatism that is private school VAT. No-one could question the idea of an equal education system and perfect meritocracy but that’s not what this achieves and the govnt’s hackneyed “State school parents have aspirations for their children too” is a cynical evasion of addressing the tangible outcome of the policy in practical terms. It is to educational equality what the British ISA was to a UK capital markets renaissance only this one hurts people. The destructive effects on the marginal private school family are clear, the potential for constructive benefits for a state school family when the second and third order impacts of families shifting sectors net out aren’t. Probably an unpopular opinion but the fact truly vast wealth (Grosvenor etc) can transcend generations via trusts and/or gifts entirely free of tax makes tighter IHT rules at least at the very top of the spectrum a more compelling place to look at progressive taxes to support state education
@BBlimp “Home Office budget to shrink by 3.1% this year and 3.3% next year in real terms, due to assumed savings from asylum system”
Still not seeing how you get from that to a 2pct cut to courts/prisons/police? Is there more detail somewhere about this, or what the ‘assumed savings’ are?
@BBlimp – your statista link doesn’t say anything about outcomes but in terms of expenditure per capita it looks like Canada spends 15% more than the UK, France and Australia 18-20% more and Germany 45% more. On the reasons for health spending rising in real terms these are well known as @Alex says.
@faustus thanks that makes more sense at that kind of level
Their source is quoted as
Household total wealth by percentiles: ONS – Household total wealth in Great Britain, March 2020, figures adjusted by Consumer Price Index;
For those interested in a rigorous comparison of the NHS with other countries the kingsfund report linked at https://www.kingsfund.org.uk/insight-and-analysis/blogs/comparing-nhs-to-health-care-systems-other-countries
might be worth a read.
While the situation is no doubt far more complicated than any of us appreciate here, it would appear that underinvestment in staff (low in both doctors and nurses) and facilities (e.g., high bed occupancy rates – if only we had some new hospitals!) may very well contribute to poor health outcomes. The overwhelming of GP services (e.g., the city I live in has one of the worst patient to GP ratios in the country) probably doesn’t help with treating conditions that benefit from being diagnosed early.
Hopefully, the increased investment in the NHS will at least begin to address some of the issues.
ps. Part of the abstract in the main report reads as follows:
“The UK has below-average health spending per person compared to peer countries. Health spending as a share of GDP (gross domestic product) was just below average in 2019 but rose to just above average in 2020 (the first year of the Covid-19 pandemic, which of course had a significant impact on the UK’s economic performance and spending on health services). The UK lags behind other countries in its capital investment, and has substantially fewer key physical resources than many of its peers, including CT and MRI scanners and hospital beds. The UK has strikingly low levels of key clinical staff, including doctors and nurses, and is heavily reliant on foreign-trained staff. Remuneration for some clinical staff groups also appears to be less competitive in the UK than in peer countries.”
BBlimp -don’t think I would do anything differently
My wife had 10 years “off” till our third kid had gone to primary school-probably why the kids did so well!
Very much our choice
Only ever bought a small house so they can’t come back-suits a retired couple though!
One daughter a GP -tells me practices don’t have enough cash to employ more GPs-they are too expensive
Imagine the Tory party having a first generation immigrant Nigerian lady as leader-take the Labour Party a while to catch up with that one!
Aren’t politicians and economies such fun -roll on Wednesday and the US elections
xxd09
@FatBritabroad
No problem. The Torygraph seems to be referencing the right source but not the correct figures (a legacy perhaps from their infamous columnist, A. B. de Pfeffel Johnson?). The actual ONS source referenced is linked here – see Figure 2 which breaks down Household Total Wealth in March 2020 by percentile:
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2018tomarch2020
Even with the triple lock on pensions it still lower than most .imagine if that was taken.careful what you wish for with a little luck you will be in receipt one day.Although as readers here you may not care
@BBlimp #79
Yes always maxxed tessa’s/peps/isas – used to have mixture of cash/S&S but nowadys just have S&S. But pensions not as much for couple of reasons.
No workplace pension so no employer contributions and back when I started at 21 only old style personal pensions – no sipps or stakeholders then. One thing was no access to the funds until some much older age wasn’t an option when I would likely need it. Later on I also found many of these pensions to be a rip off with hidden/secretive/back door charges & commissions – even when I asked my pension advisor he never disclosed exactly what charges were being taken (except the AMC and usual stuff on the yearly pension review statement) but performance was poor. I was even recommended to this pension by an IFA in the first place – pretty much hopeless – and he took commission as well as was before fee based advice came in. Another pension I took out few years later was similar, so kinda put me off these pretty much. One of these advisors also recommended a couple of S&S isas. I expected a one off commission for the advice but wasn’t told of the ongoing trail commissions being taken every year until many years later the fund manager happened to mention it when I rang about something. No wonder they never really performed very well over many years. So no fan of financial advisors at all.
Pensions nowadays – I no longer work, although still working age, due to medical conditions. Reviewed pensions and decided to transfer to DIY sipps and transferred S&S isas also to DIY platforms. Since then all have done much better – no comparison in my view. But now can only contribute the paltry maximum £2880 + T/R per annum to them which I do. Not much but get the 25% T/R on contributions and 25% TFLS when draw so better than a boot in the nuts.
Agree with you on the NHS – although the whole country is in a complete mess – what exactly do they spend all the money on as nothing improves. The NHS is a black hole into which we pour our taxes and get diminishing returns/poor service and only ever seems to get worse. Complete reform is needed/maybe different model as this doesn’t work and neither have previous reforms from recent past.
Have a lot of experience of NHS for myself and family since around 2003 and it has got much worse with many mistakes and unacceptable level of service from Gp’s & hospitals and very rude and abrubt staff. Have had to make complaints but these don’t lead anywhere – they ensure that. Family members even had a solicitor for a strong case of negligence where their mistakes very nearly caused a family member to die was it not for another family member intervening and having to be rushed back into emergency surgery. However they had to abandon the case as solicitors said the NHS would not provide information and had “closed ranks” to prevent it. Also one consultant said to me, in front of my parents, that “it may be better if my mother died as less of a burden for me” when she was only in a wheelchair due to osteo arthritis and also some mild memory problems. Could go on with many more including my own treatment which has been both useless and horrendous. But Dr’s/nurses/GP’s still seem to demand more/strike half the time for a joke of a service. Some even state they have to use foodbanks when I know people on the minimum wage who manage without quite okay – they shouldn’t even be allowed near a foodbank – what exactly do they do with their money? I think most earn enough – and many earn far more than they are ever worth in my experience.
@BBlimp. How can day to day spending go up that much within a year other than boosting salaries? How many years and other efforts) will be needed to turn available cash into additional trained staff, buildings or equipment ? Can it really go anywhere other than public sector pay rises? If it does, it isn’t available for investment downstream. It could have been used to help tackle the deficit but nope borrowing uis on the up too.
I think commentary on this budget has been a bit ingenuous, it’s priority looks more like boosting public sector pay.
We have had a good plucking justified by just stated intentions but without justification and no clarification of quantified objectives or planned routes.
I don’t understand how anyone can applaud this budget given the vacuum of tangible plans. Give me the money now and I’ll tell you what you have bought next year.
@BBlimp #79
> may be leading you to believe continuing to go it alone without advice in retirement and death planning is for the best
There’s not much that I agree with BBlimp on but this is one thing I wholeheartedly do agree on, particularly if there are concerns about care. Some of the products for care provision, such as a purchased life annuity are only available through IFAs, because the providers don’t want the hassle of compliance and mis-selling liability. It is the job of the IFA to take this risk off them.
Search for an IFA that is part of SOLLA. One of these served my late mother very well. Sure, the PLA was in hindsight a misallocation of capital, though not terribly, but it was the right way to go because of the floor it put under the risk.
@DavidV: thank you for your two remarks. One financial comments thread told me that you can buy an Immediate Needs Annuity with cash inside a SIPP – but if the commenter was wrong, he was wrong.
Monevator used to carry occasional pieces by a financial advisor – Mark Meldon – who seemed to have a really useful grasp on insurance, annuities, and so on but I’ve not seen a piece by him in ages. Maybe I should look through the archives.
As you inferred our likeliest outcome is that I’ll die first, my SIPP will go to my widow and she might later use it for an INA – assuming that that never becomes seen as an evil loophole in desperate need of plugging.
Meantime we have started a logical response to the budget – for the first time in donkey’s we went out for a decent lunch at the weekend. Then we bought two new mattresses. Then I started to investigate sources of aged Aussie Rieslings. Ooh, the high life, eh?
@BBlimp
Feel free to call me Alex. You can call me doctor if you’re feeling particularly deferential, but I’m not a junior doctor.
It looks like others have pointed out that one of your links does not back up your assertions. Allow me to give an example that might help to explain why the NHS is something of a bottomless pit. Maybe ten years ago, probably less, if you got endometrial cancer you would have biopsy, the cancer would be diagnosed in a lab, then you would have your surgery. The lab would stage the cancer and that would determine whether you needed further treatment (chemotherapy or radiotherapy).
Today, the lab would do two additional tests on your biopsy. Possibly a third depending on the results. And you might even get referred for genetic counselling and further testing for a cancer syndrome depending on the results of the third test. You’ll probably have an MRI scan before your surgery. All these results would be used to decide whether you’ll need more involved surgery (such as sentinel lymph node biopsy). Once the lab have staged the tumour (now a more involved process with more data points to report) you might get chemotherapy, radiotherapy, a new targeted therapy (expensive). Oh, and if you turn out to have that cancer syndrome, you’ll be offered additional care (such as screening for bowel cancer) and the invitation for genetic testing may be extended to your family members too.
Imagine the additional resources required for all this and then add all the other changes to medical care in the last 10 years and marvel that the NHS has managed what it has. Measuring productivity as targets met or appointments offered or whatever is inevitably flawed.
I don’t know where we’ll end up. Maybe the taxpayer will decide that we don’t want to pay for state of the art care for everything and we’ll have to decide what to ration. Personally I think it would be a moral tragedy if we end up with anything remotely resembling US health care, although I’d certainly be better off financially.
On the subject of protecting the natural world and the value of biodiversity, I highly recommend Silent Earth by Dave Goulsen.
And finally, I shall leave you with a personal anecdote. When my brother took my ranty, bigoted, brexiteer father on holiday to Greece, he banned the Daily Mail. My father stopped baiting him on subjects like race or the environment etc and went back to being the lovely man we all knew he really was. Well, for a couple of weeks at least. I do believe he was happier in himself for those two weeks too. Food for thought…
It’s disappointing that there seems to be little similarity between the statements from Labour politicians before the election and the new government’s actions since, including the recent budget. Apparently Rachel Reeves said a few days ago that the budget would be a one-off “This is not the sort of Budget we would want to repeat” (https://www.bbc.co.uk/news/articles/c86q31wlj39o). However the weekend reading linked IFS article suggests the chancellor will increase taxes further as have other commentators e.g. Ros Altmann. Does anyone believe the chancellor will not raise taxes more in the next few years?
Worth noting I think that pensions-into-IHT will change the consideration on how to balance SIPP, GIA or ISA, especially for families. For SIPPs the input tax relief could be at lower rate but now there’s more chance of higher rate out. With ISAs money can be gifted under the current rules whenever makes sense without a potential tax uplift.
Secondly, going after land billionaires is one thing but 20% IHT on smaller farms is a terrible idea. The yields on small farming aren’t high enough and will force changes on less well off rural communities. We should be encouraging small local producers!
Lastly, largely removing entrepreneurs relief or BADR is going the wrong way if you want to encourage more high growth start ups.
@dearieme (#71 #109), @DavidV (#76 #78), and others – thank you for your thoughts on possibly gifting the family home earlier to reduce IHT now that pensions are to be brought into the IHT net. I need to revisit Mark Meldon’s guest articles. I need to give this all more thought, draw the decision tree, consider probabilities, and once I have the basics, seek professional advice.
Regarding the discussions on wealth, I noticed in the Budget Report that the proposed pension changes are expected to impact fewer estates than I had anticipated: “The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pots into the scope of inheritance tax from April 2027, which will affect around 8% of estates each year.”
On reflection, this might be the point where I stop repeatedly doing ‘one more year’ and start spending more time walking in the Lake District!
@Naeclue (#52):
Interesting approach – but will registered charities not now be the biggest beneficiaries (as opposed to your relatives)?
AIUI “gifts from income” (vs PETs) have to be from income and cannot be from capital (i.e. selling down investments) – do DC pensions qualify?
Furthermore, as the exemption is only claimed (and possibly tested) on death it must be fully evidenced as you go along, and it is not unheard of for the rules to change en route to the planned destination.
@Nebilon (#73):
Good spot re DB’s (“workplace schemes”). Perhaps, as you surmise, they are typos?
@Calculus (#112)
While I might be wrong (I’m no tax expert), my understanding is that there is £1m of IHT agricultural relief for farms on top of the (potentially) £1m nil-rate band so farms worth up to £2m will be IHT free. Given that shares in the business (or land) can be gifted beforehand, then tax planning ought to be able to minimise IHT.
@Al Cam, the charities were going to receive the ETFs anyway. All that has changed is that we will be drawing more from our SIPPs than we had previously intended and passing this to nieces and nephews. Previously relatives were to receive the SIPPs after we died.
This will not completely mitigate the IHT on our SIPPs as we will not draw to zero. Having ISAs as the sole tax advantaged accounts is risky as ISAs may be targeted in future budgets.
Payments from pensions are counted as income for the “gifts from income” perspective (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14250). I don’t believe that is the case with ISAs where I believe cash from disposals would not count as income, but I have yet to find definitive statements to that effect from HMRC.
ps Hopefully we will live longer than 7 years after the gifts in any case!
Is anyone here using trusts as an IHT management strategy?
I’m thinking this may be up Finimus’ street.
A solicitor was telling me about the trade offs between 6% every decade and 40% on death, putting 325k in every 7 years, granting yourself 0% loans and things like that.
Wondered if anyone here was actually doing any of this stuff?
@Rhino I did look into Trusts years ago, but concluded they were not for us. Yes, there is a potential IHT saving, but Trusts are not tax shelters. You have to pay full additional rate tax on income and gains. Beneficiaries can subsequently claim back tax if taxed at lower marginal rates. Then there is the cost of running the Trusts. These can be minimised by buying off the shelf Trusts from insurance companies, but when I looked the choice of investments was poor (no cheap tracker funds).
I concluded that it was better to simply gift money to the kids to put into their own ISAs, SIPPs and property. This does mean having to trust that your kids will be sensible with money early on in life! If you don’t then Trusts may be worth considering.
ps Trusts may be another sitting duck for hard up chancellors. I was surprised the IHT rate was held at 6%.
@Naeclue:
Thanks for the reply.
I too am pretty sure that this budget is only the beginning – so little if any point in optimising vs the latest situation.
I had read that part of the HMRC manual, but other writers have used income from DB pensions – hence my Q, see e.g.: https://www.theprivateoffice.com/insights/gifting-surplus-income
IIRC yet other writers have mentioned ISA’s as being acceptable – but as they do not appear in tax returns they require special/additional evidencing. Having said that, ISA acceptability may only extend to cash ISA’s as opposed to S&S ISA’s – for exactly the same reasons [capital vs income] as I have a query re DC pensions.
Totally agree re the 7 years – which of course might change too.
Re not emptying the SIPPs – I suspect judging how far to run them down will be a tricky calculation, and FWIW, will inevitably adversely effect your withdrawal rate too.
Might all of the above even change the calculus re [fixed term?] annuities?
My prediction for RR’s phase 2 is:
1
ISA cap of £500k – anything above hopefully can stay but no new subs.
2
Merging income tax and NI – so the basics rate becomes 27.5%.
3
All pensions savings to become “net of tax” + 50%
The NI will Hurt pensioners, but that’s where the money is for non-workers.
It would cost me a fair bit , but feels semi-rational when all’s said and done
@dearieme #109
Yes, having noticed his absence, seemingly since the worst Covid time, I’ve occasionally wondered about Mark Meldon. He was honest about his being a smoker and, hoping very much that I was wrong, I’ve found myself putting two and two together.
@dearieme, Factor
Mark Meldon appears to be in business still:
https://meldonandco.uk/our-people/
A quick look on Companies House shows the company is active (last submitted accounts for year ending 31 March 2024): https://find-and-update.company-information.service.gov.uk/company/01797503
#120
Blimey that’s cheery. There has to ultimately be a limit on what taxes can be applied to those not in employment to generate any sense of stability in older age. Politically as well as practically. I’m not sure it’s in anyone’s long term interests to encourage individuals into a “spend, spend, spend” mentality then fall back on the state.
I think caps on tax advantaged vehicles seem a reasonable proposition but provided the cap is determined appropriately. The issue with the old LTA (and the LSA) is that a sum of £1m in a SIPP/DC doesn’t really represent a mega amount in annual annuity income (recently saw about £45k in Single life with 3% escalation at age 60). Yet without getting at the “prudent” middle the rump of the meat isn’t there.
An ISA contribution cap at £500k doesn’t really mean much more tax generated I suspect.
“I noticed in the Budget Report that the proposed pension changes are expected to impact fewer estates than I had anticipated”: ah, but remember that the estate of the first of a couple to die will be free of IHT if passed to the widow. So it’s only the widow’s estate that will be pillaged.
The incidence of the tax, though, falls not on the widow but on her beneficiaries who might vary in number from 1 to N . So the number of individuals affected might be pretty large: some will doubtless be toddlers who will thus pay tax at 40% IHT plus whatever income tax bracket they’ll land in when the pension money arrives.
Should I write to Kemi and suggest she call it “Two-Tier’s Toddler Tax”? Tempting.
A great budget! But Labour must go further… we need:
– Scrap tuition fees – only have degree apprenticeships going forward. Make employers pay for all higher education.
– Tax homeowners (i.e. 10% CGT on sale of primary residences, 50% CGT on second properties).
– Add more council tax bands (with no cap).
– A new 50% income tax rate for earners of £250K+
– All flights to be taxed at an extra £50-£100 per person per flight (£50 short-haul, £100 long-haul).
– Fuel duty increase of 5p per litre (with haulage to pay 2X this rate).
– Double VAT on unhealthy foods: sugar, UPFs, fizzy drinks etc.
– Tax social media usage at 1p/min, and 1p per text/msg/email.
– Ban phones and social media for anyone medically diagnosed with any mental illness (e.g. ADHD, anxiety, depression etc).
– Part-privatize the NHS (make medical insurance compulsory).
– All public sector pensions to end, transfer everyone to private DC pensions.
– Benefits to be cut by 1% pa until everyone is working (create compulsory jobs as required). Illegal immigration will end if there are no benefits.
– End cash payment (CBDCs will mean criminals have no way of getting paid).
This would fix the deficit, allow a budget surplus, remove most health problems and crime. Labour needs to do this asap.
I do wonder whether there will be a material switch from designating children as beneficiaries of a SIPP* to get the IHT skipped early and possibly a pre 75 benefit to ensuring everything goes to spouse and inflating overall estate on a kick the can down the road basis. In perhaps a vain hope that IHT is eventually lowered/granted higher thresholds.
*certainly something I’ve been advising friends to think about if they already have tasty DBs or a spouse with their own decent SIPP. Maybe not widespread.
@Curlew @Dearieme @Factor — I have asked Mark to write for us again over the years but I got the impression he felt he’d scratched that issue. Perhaps I’ll drop him a line again. I agree that his pieces added another dimension to the site!
@Alan S (115) Thanks, the £2m level would still catch many farms in this part of the world that don’t make huge income, and gifting seems a fair mitigation strategy. One wonders if the 7 year rule and lack of gift cap are next on the block.
@Alan S @Calculus — See the Dan Neidel X thread I linked to above in the Saturday links. He reckons the threat to small family farms is overblown.
@Calculus, I don’t know much about the taxation of farmland, but normally if you give something away you have to pay capital gains tax on the increase in value of the gift. If this applies to farmland that may make gifting difficult. CGT is not applied on death and the value of an asset is uplifted to the value at death. As there was no IHT to pay on farmland and no CGT on death, passing farmland on death may well have been more tax efficient than gifting before death.
I met a farmer on Sunday night. He is of course livid. Judging by the amount of time he spends on his yacht he is clearly retired or mostly retired but still owns the farm. He did tell me that his kids have their own careers and have no interest in taking over his farm, so they would probably sell after he has gone anyway. Maybe there should have been some difference in taxation between those inheriting and subsequently running a family farm and those cashing in.
I wonder whether the issue that has arisen with farming is the growth in price of the land. This has grown out of all proportion to the income that can be achieved from farming. From what I have heard some farmers say farming doesn’t seem to make much business sense. I wonder whether part of that reason was the IHT break on farming. Without that maybe land prices will fall such that yields from farming make more sense.
The problem with tax incentives is that they are open to abuse. The ability to pass on pension funds free of IHT was clearly distorting pensions. I know this because I reacted to the ability to avoid IHT via pensions. AIUI, a similar thing has happened with farms. People buying in to avoid IHT.
A £1 million pension buys you an annuity much lower than the average wage. A £3 million sheep farm will give you an income of ~£16K pa in Wales (half the average wage, and much lower than minimum wage). You would need to earn £50K-£70K to have the same standard of living as a family on benefits.
ASSETS ARE TAXED TOO HIGHLY. THERE NEEDS TO BE A £5 million THRESHOLD ON ASSETS BEFORE ANY TAX! (Also tax ALL benefits!!!)
@BBB #123
The ISA change is needed not to increase tax take today, but to ensure the future revenue stream (lost) isn’t too significant. An argument could easily be make for a much lower limit.
Taking my (hopefully near future) position of around £50k pension and other income PLUS 2x£500k isa giving off 5% income – so £100k pa and £7500 tax £0 NI,
Compare that to a worker earning £100k with no ISA. – roughly it’s £27k tax, £4K NI (£14k employers NI on new basis).
£7.5k v £31k (or £45k inc ENI )
I’m on the right side of the fence but this is not justifiable nor reasonable. So after writing this we need merged tax and NI, and ISA limit of £200k (that doubles the state pension with no tax)
#125+1 we need change and the govt needs teeth, and to use them
@Simon West — Please don’t shout in CAPS on our site, cheers!
The market is loving the Trump win, and the market is always right!
@Boltt #132
As accumulators I wonder whether we place too much emphasis on what a good deal ISAs are. They are obviously but how many people in their earning years are fully using the £20k on top of fully funding pensions? I will have a retirement project to convert GIA to ISA (at an 18% hit) and that GIA will inflate with any TFLS I take to try to head off any future potential pension tax changes (tax at 18/24 beats tax in SIPP at 20/40 on growth anyway once LSA has been passed). Guess I just have to get used to the idea that I will be facing at least 20% tax plus the NI whammy if it happens.
@TI Im not subscribed to X for the Niedel thread – if the argument is there’s ‘only’ 500 farms affected for 22/23 – thats the figure, but its out of the 1700 or so reporting for estate relief for that year. So about 30% of all farms (and rising) , not overblown ~(check out the defra survey on farm assets and net worths). https://www.gov.uk/government/statistics/balance-sheet-analysis-and-farming-performance-england/balance-sheet-analysis-and-farming-performance-england-202223-statistics-notice#net-worth
@Naeclue – if people are buying into farmland solely to avoid IHT at least at the smaller end, good luck – its a poor yielding asset that needs a lot of maintenance and holds a fair level of risk! Maybe covid induced moving to the countryside has been a factor?