Probably the worst flagship tax ever?


George Osborne says his proposed tax break for high value homes is about “values”, it is no such thing. This policy is about votes.

What is going on with the conservatives on tax? They have become obsessed with the “retail offer”, the giveaway that captures the public imagination and sweeps them into power (without interference from troublesome liberals).

This election’s big idea is being touted as an increase in the inheritance tax threshold to take all but the biggest houses out of HMRC’s inheritance tax net. This of course a return to “wealth cascading down through the generations” and is designed to appeal in a big society way.

But it’s all a bit of a con and it’s going to do a lot of harm to pensions without doing much good for anyone. As Robert Peston asks, “Who wins from Inheritance Tax Giveaway?”.

Of course this policy is brought you from the Department of Pension Irresponsibility (Tory Treasury “thinkers”). It will be paid for by reducing the amount that high earners can pay into pensions and its impact will be to further alienate those who manage our businesses from the works pensions on which everyone else will rely – pension apartheid.

The absurd reality (which will go down like a lead balloon when explained on the shop-floor) is that someone on £40,000 can contribute £40,000 to their pension , but were they able to earn £210,000, the contribution limit would fall to £10,000. It’s totally nuts and the fiscal thinking of people totally detached from day to day budgeting.

You might argue that with the pot being capped at £1m, this is inconsequential but try telling that to those “hard working executives” who are trying to catch up on pensions.

Try telling that to those people who are still in final salary schemes and will find themselves paying tax at a punitive rate to keep accruing and try telling that to the people who manage pensions who have to communicate and administrate this nonsense.

Unfortunately, there is no better news from the other side of the house, as the Labour Party are committed to exactly the same squeeze on high-earners.

The only difference between Tories and Labour is that the Tories are imposing fake giveaways as morale boosters to their hardcore voters and those aspiring to be housing wealthy, while Labour is inventing a “mansion tax” as part of its politics of envy.

It’s a simple choice – snobby or chippy.

It’s not even a tax-cut – just a poxy wealth protection scam.

If you think this is a mindless rant at  the pension hooligans who are behind Tory tax policy, let’s look at the numbers. They don’t suggest any more people won’t be paying IHT on their properties than today.

George Osborne says that increasing the effective threshold for married couples from £625,000 to £1m is going to impact about 11.5% of inheritances.

The last figures we have from HMRC (2010) tell us that only 2.5% of estates were subject to inheritance tax. It’s thought that because of house price inflation, 6% of inheritances are now affected and this will rise according to the OBR to 11.6% in 2019. So all these new tax payers are just ring fencing capital gains for the lucky few.

Even madder, these plans are not going to be brought in till 2017. Using the Government’s own estimates of house price inflation, the tax change will do no more than keep the numbers of houses impacted by IHT at 6% (unless that £1m is going to be adjusted upwards in line with the “swanky house index”).

All this tax giveaway is doing is putting housing wealth into a kind of IHT protected tax-wrapper that rewards the few and panders to the aspirations of the many.

So this is another phoney tax giveaway dressed up as “the big retail offer“.  This is as much about values as Arthur Daley’s lock-up.

Those with housing wealth are going to be bailed out by those with high incomes who will presumably  invest in bricks and mortar rather than in equities and bonds.

I can think of no better phrase for this than rearranging the deckchairs on the titanic. If this is the big retail offer, what about the rest of us?

And pensions pay the price for this foolishness!

Screwing up pensions still further , so that people can feel better about their housing stock is no way to manage a tax system!

Unfortunately, there is no better news from the other side of the house, as the Labour Party are committed to exactly the same squeeze on high-earners.

Both Labour and Conservative policies are sending out all the wrong messages. Pension saving is good for the economy, it creates the conditions for investment, propping up the price of our top-end housing stock does nothing for most of us but encourage us to further indebtedness.

Whether you are robbing pensions to pay for IHT giveaways or for the NHS, you are robbing the wrong pot guys!

Conning people that their housing rights are in perpetuity

Stating  that Osborne  is legislating for

” The basic human instinct to provide for your children”

is a total nonsense. The housing stock is already mortgaged to pay for the retirement income most people haven’t saved for and for the long-term care that the nation cannot afford other than by drawing down on the property.

What’s more, these houses are unlikely to pass across generations, the kids will typically have a row about ownership and the property sold. This is the pattern of property succession that proves that the “provided for” children are rarely the better for their parent’s munificence.

The office of pension irresponsibility chooses to avoid mentioning these harsh truths and is treating us as precisely the gullible fools that fall for pension scams. If I had any inclination to vote for Osborne and Cameron , it is gone.

Pray for Steve Webb, let’s hope he can moderate this madness.

The best we can hope for is for some sanity from the Liberals and Steve Webb, delivering a sensible reform to pension taxation that gives everyone one rate of tax relief and stops these ludicrous complexities dreamt up by people who know nothing about the pension system.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Probably the worst flagship tax ever?

  1. David says:

    As per UK high value homes and taxes, it is to be seen how long they will remain so high in value relative to these arbitrary new thresholds.

    As for the very wealthy losing out on pension contribution fund sizes, in the end they have vehicles like ISA and the new tax-free savings on interest up to £1000 a year arriving shortly.

    Yes they won’t attract other contribution benefits on the way in, but given they will likely be tax free upon withdrawal then they are potentially very powerful.

    I’m still surprised that the virtues of tax-free saving due to compounding are paraded, when the future tax legislation on withdrawal may be very different.
    If you think today’s ‘tax grab’ of the wealthy by left leaning Labour is bad, imagine a future government who decides the super-wealthy pension generation in 20 years time could do with a 75% tax rate on their large incomes.

    However I generally agree. Rearranging the deck chairs on the Titanic won’t achieve anything.

    But if we use that analogy then we must also appreciate the fate of the Titanic the second it hit the iceberg was fixed.

    Is the UK doomed to sink over the coming years? Or do you think there is some policy that can ‘save’ all our accumulated wealth and avert the loss of HMS UK?


  2. henry tapper says:

    I don’t think that HMS UK will sink!

  3. Gerry Flynn says:

    I agree that HMS UK will not sink only because those people who are disadvantaged and the organisations who support the welfare of the UK will be thrown overboard to enable those who are advantaged to continue prosper.

    • David says:

      Gerry, that is the thing that worries me.

      It makes you wonder if the ‘next time’, which we are slowly approaching, things will go differently for the UK.

      It certainly makes me wonder where the average person is supposed to place their hard earned income and have it protected.
      Even the safest asset clash, cash, is now looking like it may simply be taken up by the debtors of the banks.

      In the UK the tax payer, and our children, bailed out the banks. Interest rates were lowered to subdue the debt interest liability, and a hoped inflation driven by money printing and other stimulus would inflate away the debt to manageable levels.

      It seems in Austria the next play is simply to let savvy savers bail out the banks directly.

      Personally I’d prefer cash in my mattress in Austria right now.

      Or if you’re to lose your hard earned income to bad debtors, at least benefit from the risks that entails and get 6% return or so on a peer to peer lending basis, rather than the few percent banks offer at best.

      Who will pay for the UK to prosper? As I said in a comment on another recent post, we all have to pay and I don’t think there is any escape.
      I just wonder when the hyper inflation will start to be visible… the saviour of the sinking ship, but also the one that destroys the real value of our preserved wealth, from stocks and equities, to property and land, to cash in the bank.

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