Category Archives: taxation

The State Pension is taxed, why not The Winter Fuel Allowance?

We are surprised that subjecting pensioners to new means tests is being suggested for the Winter Fuel Allowance which may require an army of means testers. It would also subject many pensioners to a process that they feel very uncomfortable with. Our suggestion for a long time has been to make WFA subject to taxation in the same way as the State Pension is. We’ve never heard anyone complaining that the very wealthy enjoy the State Pension, so what is the problem with taxing Winter Fuel Allowance? The answer that many may give is that a lot of people will be affected by this, without necessarily being on a massive income. But at least the most needy would get the pension in full, and it would stop the continual bleating about this allowance being paid tax free.

An army of means testers needed ?

An army of means testers needed ?

Some constructive alternatives for funding care of the elderly

There are a lot of comfortably off pensioners. And lots of poor ones. And there are a lot better ways of finding money for elderly care than Theresa May’s manifesto commitment to whipping the houses off people who need care at home.

Under the Conservative’s plan, people needing either domiciliary (aka at-home) or residential care will have to pay for everything until the value of their assets, including their home, is down to £100,000. The Tories promise that no one will be forced to sell their home in their lifetime to pay for care, with the cost instead deferred and taken from their estate after death.
Care of the Elderly Costs
The plan is superficially seductive. The older generation have benefitted from spectacular – and largely unearned – increases in the value of their property. Why should younger working people, through income tax, pay for the galloping costs of elderly care when they can’t even dream of affording to buy a home themselves? Doesn’t it make more sense to instead take the money out of the congealed wealth sitting in property? And, indeed, there can be no justification for the state protecting the inheritances of the well off by taxing hard-pressed working people.

But there are two major drawbacks. Firstly, there is the risk that the elderly will delay seeking support at home because they won’t want to enter into a domiciliary care plan involving a charge on their property. They won’t get early treatment and will fall on the NHS.

The second drawback is more serious. No one chooses Parkinson’s or Alzheimer’s – they choose you. Health inevitably deteriorates in old age, but the conditions that will result in intensive care costs, whether domiciliary or residential, are largely random. A quarter of the over-85s are likely to develop dementia and a third will need constant care. But that leaves large numbers not in need of intensive care. Indeed, only one in eight over-85s are in care homes.

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We don’t for a moment think that someone in their 50s with breast cancer should have a lien put upon their home to pay for their care. We share the risk by paying through our taxes for the NHS and community care services. Why, then, should we think that a random third of the over-85s should have charges added to their homes but the other two-thirds not?

But that doesn’t take away from the fact that the increasing cost of care for the elderly needs to be found somewhere, and it would be unfair for the young to shoulder all the burden.

One of the oddities of the tax system is that we stop paying 12% national insurance on our earnings once we reach state pension age. The idea is that NI is basically a savings system that pays for our pensions, so once we’re in receipt of a pension we stop paying in. But NI, when first set up, was a system of insurance against illness and unemployment. If NI is supposed to help fund the NHS and care services, there is no reason why pensioners – the better off at least – shouldn’t be paying it, albeit at a reduced rate.
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taxed winter fuel cash to help social care crisis says Baroness

Baroness Altmann has claimed its “ridiculous” that affluent pensioners receive the benefit without a tax penalty – which could help fund social care

AN ex-Pensions Minister is calling for rich pensioners to be taxed on the winter fuel allowance.

Baroness Altmann says it is “ridiculous” they are not — and that the tax penalty could help fund social care.

The Sun on Sunday can reveal just 518 OAPs have declined the payment, which ranges from £100 to £300 and used to help pay heating bills in the winter months, since 2011.

Total government expenditure on it is around £2billion and it is paid to more than 12million pensioners.

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Our comment: this has been a recurring hot chestnut over recent years, but so far governments have not responded. Many people forget that the State Pension is taxed for those with sufficient income. We advocate an increase of 25% in the allowance which is then paid with state pension payments, which will be taxable. That way those that need it will get the full amount, and those on higher incomes will be taxed on it.

Government drops plans to allow pension annuities to be sold for cash

The Treasury has ripped up plans to let millions of pensioners sell their annuities for cash lump sums, over fears it could lead to them being ripped-off twice by insurers.

The scheme was announced last year as a lifeline to rescue elderly savers from being locked into lifetime annuity deals which pay them derisory annual incomes.

Doubts had been cast over the scheme in recent months following revelations by this newspaper that a number of pension firms had refused to take part.

Regulators had also warned that pensioners could face “rip-off” charges of up to 20 per cent when they tried to cash in their pension.

Last night experts said that although pensioners locked into poor annuity deals would be disappointed by the about-turn, the policy was flawed from the start and the Government was therefore right to scrap it.
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How taxman hounds unsuspecting pensioners while business fat cats get off scot-free

Taxman hounding pensioners
Debt collectors hired by HMRC are sending threatening letters out of the blue to vulnerable taxpayers, demanding immediate payment over often innocent mix-ups.

Other diligent taxpayers are also being wrongly harassed and left in fear of the bailiffs after the tax office botched some of its calculations.

The often frightening tactics on cash-strapped families come amid scandals involving big-name international companies including Facebook, Google and Starbucks which were found to be paying minimum levels of tax.

HMRC has launched a “cack-handed” attempt to claw back cash dished out to families years ago by scouring its books for tax credits handed out by mistake.

But the use of debt collectors has left taxpayers feeling vulnerable and scared, fearing bailiffs might turn up on their doorsteps at any moment.

Elaine Clark, managing director of CheapAccounting, said: “HMRC should be going after big firms who have failed to pay their tax, not pensioners over £200 dating back from years ago that they didn’t realise they owed.”
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How can we reconcile reducing public spending whilst lowering Inheritance Tax at a cost of £1bn per year

Last July the Chancellor made changes to inheritance tax

His intention to lift all but the wealthiest homeowners out of inheritance tax was first revealed when sensitive Treasury papers were leaked to the Guardian before the last budget, which concluded that it would “most likely benefit high income and wealthier households”.

The changes are estimated to cost the Exchequer about £1bn per year.


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Our comment:It is difficult to reconcile the fact that so few lower income people will benefit from the inheritance tax changes and so many people with lower incomes, including disabled people will stand to lose from expenditure cuts.

The losers from the July 2015 budget

The Budget Pickpocket

The Budget Pickpocket


A Budget that betrays working parents – that’s what we’ve had from George Osborne today.

Families with kids are going to be really hard hit by the Tories plans. Women are going to be hit more than twice as hard as men – by a Chancellor and a Prime Minister who clearly don’t give a damn about working parents’ lives.

Many families are going to be thousands of pounds worse off as a result of the £4.5bn cuts to tax credits alone, with over 3million families affected. That’s even before you include real cuts in the value of child benefit for the next four years.

If you’re on average pay with two children, you’ll lose £2,000 in tax credit cuts next year.

I’m glad the Tories have finally given in to our calls for a big increase in the minimum wage, but it’s not enough to compensate parents for the tax credits they are cutting. And they certainly shouldn’t call it a Living Wage because it still falls short of that.

A single mum with two children working part time on the National Minimum wage will gain just over £400 from higher pay but lose £860 from lower tax credits in 2016/17.

A couple with two kids both working full time on the minimum wage will still be £700 a year worse off. And if you’re currently paid more than the minimum wage, you’ll be harder hit.

Plus they are actually discouraging parents from working harder. Earn an extra pound or two and they’ll claw half of it back from your tax credits.

Remember how they said a 50 per cent tax was a disincentive for the highest paid people in the country? Yet they are quite happy to do it for the poorest paid.

So much for George Osborne’s promise to help working people. Do parents just not count as working people? Is this the “lifestyle” George Osborne claimed he didn’t want to fund?


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Would you prefer your tax cuts now or when you are dead ?

We hear that the Chancellor has plans in the budgets in a few days time to reduce tax on people’s assets after they have died. It is called estate duty, and the plan is said to be to reward those who have worked hard all their lives in this way. The only trouble is that none of you will ever see it, as nothing happens until we are gone. If I was a Cockney I’d be saying to Mr Osborne “You’re ‘aving a larf aint yu ?”

Chancellor Osborne

Personally I’d prefer my tax cuts now so that after a life of hard work I can enjoy the pension that I have earned, whether it be on holidays, new car, help the children to afford to buy a house, new TV, computer, furniture for the garden and so on. I still won’t be able to enjoy all of these things, but what is for sure I might enjoy some of these things, and I’m equally sure that a tax cut after I am dead will give me no enjoyment for all my hard work at all.

As he prepares his budget and considers alternative ways of saving the £12 billions we hear about, it sounds to me that he will be weighing up cuts in community services against changes in income tax and so on, but if he reduces estate duty now (and bearing in mind people die every day so the reduction in estate duty would cut the funds he has to ‘play with’ as soon as it comes into effect. This will therefore require spending cuts or tax increases to replace the lost funds. And would you believe it is mentioned that “The changes, likely to cost about £1bn, will be paid for by reductions to tax relief on pensions” i.e. many people will get less tax relief on pension contributions to provide tax relief to the deceased.

Some will argue that it is the kids that will benefit, but if I manage to live to say 80 the offspring will be into their 50s and over that expensive hump when children are at infants, at school, university and so on. And I’d far rather give some to the kids and grand-kids now rather than when they get older and can look after themselves. So I don’t feel obliged to save up for my death so the kids can have a good time. I’ve worked hard all my life and think I am entitled to enjoy what I’ve earned.

The other risk we take is that who knows what the situation will be when one pops one’s clogs at some future date – we could have a Labour government in power again who aren’t so inclined to keep estate duties low, so I’ll be socked by tax during my life, and again when I die (except I won’t feel the pain of the latter.)

So you can see what my answer is to the question posed “Would you prefer your tax cuts now or when you are dead” – but I’m interested to know how you feel about it.

Fred

Fred Robson, Blog Editor

Fred Robson

Tories plan inheritance tax cut for millions?

George Osborne is planning to use his first Conservative budget to lift all but the very richest households out of inheritance tax on the same day he sets out billions of pounds in welfare cuts.

The move will allow a couple to pass a house worth up to £1m to their children or grandchildren. The chancellor will create a £175,000, tax-free allowance per person for their main property on top of their existing £325,000 allowance that can be applied to all assets.

His intention to lift all but the wealthiest homeowners out of inheritance tax was first revealed when sensitive Treasury papers were leaked to the Guardian before the last budget, which concluded that it would “most likely benefit high income and wealthier households”.

The Conservative proposals were later confirmed by David Cameron during the election campaign and became a key plank of the Tory manifesto championing a “Conservative dream”.

At the time, the Institute for Fiscal Studies (IFS) said the proposal would disproportionately benefit wealthier people and could have a negative effect on the property market if elderly homeowners were discouraged from downsizing.

It is understood the plans have now been amended to allow pensioners to move into smaller homes without missing out on the £1m relief on their former properties. A new mechanism will mean that if someone sells their main residence and buys one that is cheaper, they will get the allowance up to the value of their previous home.


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Independent Political Poll June 2014 – 57% of voters happy to pay more tax to fund NHS

Over half of voters say they would be happy to pay more income tax as long as the money went directly to the NHS, which is facing a £30bn gap in its finances by 2020.

Polling firm ComRes found that 49% of people would be prepared to pay more tax to help fund the health service, one in three (33%) people said they would not be ready to do so, and 18% did not know either way.

However, if only the views of those who expressed an opinion are considered, as many as 60% of people are willing to pay more tax to help the NHS providing its wide range of services; 40% are not.

The public’s willingness to pay extra tax to help the NHS has reached its highest level in over a decade amid growing concern about hospitals slipping into the red, waiting lists lengthening and the service becoming unsustainable.

The 49% and 60% figures are the highest seen for either of the methodologies since the early 2000s, just before Tony Blair’s government kickstarted a sustained campaign of well above inflation NHS budget increases.

Professor Chris Ham, chief executive of the King’s Fund health thinktank, said the increase in people willing to help the NHS financially was likely to be linked to public perceptions that it had started to struggle financially and clinically and because it was so highly valued.

Read the report


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Our comment: What is it going to take to wake politicians up to the public concern about the state of the NHS ? None of the political parties are making any radical proposals for this. The public have reluctantly gone along with the need to reduce public expenditure, but the £2 billion pounds taken out of the NHS budget each year is the root of the present malaise. At the end of the day this is a wealthy country and the public demands an NHS that provides a good service. With an increase in the proportion of elderly people / people living longer to expect to be able to reduce health spending is ridiculous.

Pensioners Pay 30% Of Retirement Income As Tax

The money goes in income tax, VAT on goods and services and council tax, according to the study.

Losing nearly a third of expected pension income can make a big dent in a pensioner’s spending power.

On average, reckons the Pru, most households pick up around £21,300 a year gross – before tax – in retirement, and end up with £14,900 to spend after tax.

Income tax and council tax are direct taxes which pensioners have no control over – but they can pay less VAT by spending less or dealing with traders not registered for the tax.

Stan Russell, retirement income expert at Prudential, said: “Giving up work is optional, but paying tax is not. People will stay pay tax in their retirement, even if they pay no income tax, they will lose money in indirect taxes like VAT.”
Pension changes and tax

The financial firm calculated 8% of average pension income goes in income tax and VAT, 4% in council tax and 10% in excise duties for cars, wines, beers and spirits, cigarettes and fuel.

The Pru also explained that pension changes proposed by Chancellor George Osborne allowing retirees easier access to their pension funds from April 2015 will also affect the taxes they pay.

“These changes could change the amount of income tax and VAT paid. More choice could mean more tax, depending on how the money is spent or invested,” said Russell.
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Our comment: so we aren’t getting bus passes for free.

Cameron: Pensioners who splurge pots will fund own long-term care (from where exactly ?)

Retirees who withdraw their pension pots in one lump sum could end up paying for their own long-term care, Prime Minister David Cameron has suggested.

During a speech in Brighton earlier this week, Cameron eased concerns that retirees would spend all their savings under looser drawdown rules announced in the Budget (PP Online, 19 March) and still fall back on the state for long-term care costs.

He said: “It’s deeply condescending to say to people who’ve worked hard, who’ve saved all their lives, who’ve been thinking about the future, ‘you can’t trust them to spend their own money because they’re irresponsible people’.

“They’re not irresponsible people; they’re responsible people. That’s why they saved in the first place.”

The Prime Minister went on to explain that the single tier pension of £140 per week will end means testing, and that the government cap individuals’ long-term care costs at £75,000 (PP Online, 4 July 2011).

He added: “It is lifting people out of the means test, so even if they do go and spend lots of money on certain things, they’re not going to be reliant on a means-tested system.
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Our comment: a distorted logic here I think, if some people do blow their pension pot (and the experience in Australia suggests that some will, and which seems almost inevitable to us) what will they then pay for their long term care with ?