Rachel Reeves to announce £20 billion cuts today

gramercy said:
That’s what I was asking in my original question, sounds like I was correct.

Is my maths correct in my thinking that if you cap the pensions tax relief at 20%, people who are subject to 40% tax are essentially getting taxed at 20% on money going in, and possibly again at 20% on the way out depending on how much they manage to put away in a career?

What im driving at is that in addition to the pension with my employer I also contribute to a private pension.
But if these new rules come in and my money is getting taxed before going in, and taxed on the way out, I’d be better off sticking the future contributions into an ISA. As under current rules there’s no tax on the way out.
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To be honest I think you’d be better off seeking advice from a pensions expert rather than a footie message board 👍
 
Think people are fundamentally not understanding how pensions work. You don't get more or less in a pot depending on your tax rate. If you put £100 into a pension it is worth £100. The benefit of doing that as a 40% rate tax payer is that you don't pay 40% to take that income now but if your pension is high enough in the future you might be taking it at 40% anyway or you might be taking a smaller income so it's taxed at 20%.

The big benefits (to everyone but it obviously benefits bigger pots more) is that 25% can be taken tax free. The other big benefit is that there is no inheritance tax on the leftover pot so you can leave a big pension pot that never gets taxed. That's a big item that should be looked at. Inheritance tax is far too easy to avoid at current and nobody deserves to inherit large sums of money without paying tax on it.
 
I’m assuming that the 25% tax free lump will be a thing of the past by the time I come to retire, which is why I don’t mention it in my fag packet calcs.
 
dribble said:
Jeremy Hunt complaining about Reeves, “ I didn’t blame Labour when I took over and had to find 30 billion in savings” it was then pointed out to him that he took over from Kwateng of his own party. The penny dropped but the man is an imbecile.
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Is he really so thick that he didn't realise the tories had been in government since 2010?? Rhetorical question I suppose, he clearly didn't realise!
 
Nano said:
Think people are fundamentally not understanding how pensions work. You don't get more or less in a pot depending on your tax rate. If you put £100 into a pension it is worth £100. The benefit of doing that as a 40% rate tax payer is that you don't pay 40% to take that income now but if your pension is high enough in the future you might be taking it at 40% anyway or you might be taking a smaller income so it's taxed at 20%.

The big benefits (to everyone but it obviously benefits bigger pots more) is that 25% can be taken tax free. The other big benefit is that there is no inheritance tax on the leftover pot so you can leave a big pension pot that never gets taxed. That's a big item that should be looked at. Inheritance tax is far too easy to avoid at current and nobody deserves to inherit large sums of money without paying tax on it.
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Inheritance tax money has already been taxed tho why should it be taxed again. If i can not pass on to my children. I would try and cash in a waste the lot before thd tax man got anymore of me
 
gramercy said:
That’s what I was asking in my original question, sounds like I was correct.

Is my maths correct in my thinking that if you cap the pensions tax relief at 20%, people who are subject to 40% tax are essentially getting taxed at 20% on money going in, and possibly again at 20% on the way out depending on how much they manage to put away in a career?

What im driving at is that in addition to the pension with my employer I also contribute to a private pension.
But if these new rules come in and my money is getting taxed before going in, and taxed on the way out, I’d be better off sticking the future contributions into an ISA. As under current rules there’s no tax on the way out.
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No that is not the right way to look at it.

The pension contribution is tax free for everyone (up to a limit, 60k per year I think).

The 40% tax payer will obviously gain proportionately more and the more they earn above the 20% tax band the more they gain. Some people maximise their position by making pension contributions to keep their earnings down to within the 20% tax bracket.
 
HolgateCorner said:
No that is not the right way to look at it.

The pension contribution is tax free for everyone (up to a limit, 60k per year I think).

The 40% tax payer will obviously gain proportionately more and the more they earn above the 20% tax band the more they gain. Some people maximise their position by making pension contributions to keep their earnings down to within the 20% tax bracket.
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I grasp that as the rules stand. But if the rules changed to a flat 20% tax relief for all, then surely a 40% tax payer would see some tax on their contribution as their earnings are subject to 40% tax but they’d only be getting 20% relief.
 
Omega said:
Inheritance tax money has already been taxed tho why should it be taxed again. If i can not pass on to my children. I would try and cash in a waste the lot before thd tax man got anymore of me
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Not true, it’s a good way to tax the equity gains in house prices particularly in the south, some of that money has avoided tax up to now.

If rich people just want to go around avoiding tax that is a shame when the vast majority are taxed at source under PAYE and have no chance to try tax avoidance.
gramercy said:
I grasp that as the rules stand. But if the rules changed to a flat 20% tax relief for all, then surely a 40% tax payer would see some tax on their contribution as their earnings are subject to 40% tax but they’d only be getting 20% relief.
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But not all the earnings are at 40%, a substantial portion is at 20%, the 40% only kicks in for earnings above a certain amount.
 
The elephant in the room is that we can afford to ensure ALL pensioners are heated in winter. Just like we can afford to ensure all children have enough food and clothes. We could end homelessness as well. The issue is the political will is not there. Hunger and poverty are built into system we live under and until that changes we’ll always have shivering pensioners, hungry kids and people sleeping in shop doorways.
 
HolgateCorner said:
Not true, it’s a good way to tax the equity gains in house prices particularly in the south, some of that money has avoided tax up to now.

If rich people just want to go around avoiding tax that is a shame when the vast majority are taxed at source under PAYE and have no chance to try tax avoidance.

But not all the earnings are at 40%, a substantial portion is at 20%, the 40% only kicks in for earnings above a certain amount.
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But if the amount that’s going into a pension is smaller than the amount a person is over the 40% tax threshold by then surely all of that money would be subject to 40%.
As it stands you get the tax taken off pension contributions at that rate.
But under a flat rate of 20% for all you’d still be paying some tax on the money contributed.

If you weren’t then wouldn’t the tax relief still be 40%?
 
Omega said:
Inheritance tax money has already been taxed tho why should it be taxed again. If i can not pass on to my children. I would try and cash in a waste the lot before thd tax man got anymore of me
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Your pension is taxed ‘again’ when you spend it so you won’t be able to avoid any tax liability when IHT is taxed to cover pensions.

The good news is some will spend it and that’s good for the economy.

This is a good thread showing the real dilemmas in life.
We have some saying they know people who have tiny pensions or not been able to save for a pension.
Some have a pension and want the ability to leave it tax free to their kids.

Doesn’t feel right to me
 
1finny said:
Your pension is taxed ‘again’ when you spend it so you won’t be able to avoid any tax liability when IHT is taxed to cover pensions.

The good news is some will spend it and that’s good for the economy.

This is a good thread showing the real dilemmas in life.
We have some saying they know people who have tiny pensions or not been able to save for a pension.
Some have a pension and want the ability to leave it tax free to their kids.

Doesn’t feel right to me
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Even worse, the example I gave with a guy without a pension, he could totally afford it, he just chooses not to, madness.

The state pension should be what covers people who are not able (and I mean not able to, not choose not to) build a decent pension... It's woefully short IMO.
 
gramercy said:
But if the amount that’s going into a pension is smaller than the amount a person is over the 40% tax threshold by then surely all of that money would be subject to 40%.
As it stands you get the tax taken off pension contributions at that rate.
But under a flat rate of 20% for all you’d still be paying some tax on the money contributed.

If you weren’t then wouldn’t the tax relief still be 40%?
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Under the present rules if you put contributions above 60k per year into your pension you have to put a taxed pound into it, there is no tax relief.

Tax is 20% up to about 50k per year, so by my reckoning you would have to be putting more than 50k in before a flat rate of 20% was genuinely biting you?

Very few people can afford that sort of pension saving.
 
I feel like everyone should have the opportunity to save for their retirement in an equal way - and I think the 20% or 40% relief is a bit of a red herring, it should be thought of as tax free savings. This gives people (anyone!) a chance to save as much as possible whilst working, which in turn is invested (good for the economy?) and grows over the years, and they then pay tax on a much larger sum when they need it later in life (which again, good for the economy). It also puts less strain on the state if people have their own money when retired.

The "40% relief" comes from the fact that not all pensions are taken pre-tax, for example a lot of auto-enrolment pensions managed by NEST are taken post-tax and the 20% "relief" is claimed back by NEST on your behalf (e.g. you pay in £100, they will claim £20 for you). If you are a higher rate tax payer you can contact HMRC to get your tax code changed to take into account the extra 20% so you pay slightly less tax on your PAYE earnings.

Using an example above, if your pension contributions are taken from money that crosses a tax threshold, you are only eligible for the "40% relief" on the portion that is subject to 40% tax. For example if you put £500 into your pension each month, and only £250 of your salary was subject to £40% tax then you could only claim the additional 20% tax relief on £250 of your contributions.

As gramercy mentioned, if people who pay tax at 40% are made to pay 20% tax on their pension contributions, then they will be paying 20% on the way in, and 20% on the way out, which hardly seems fair compared to a base rate saver who pays nothing going in and 20% coming out.

I admit I am biased a bit as I am in the higher rate tax band, but I feel like we shouldn't be targeting these kinds of tax initiatives at the people who are doing a bit better than average because it isn't those people who are harbouring all the wealth that needs distributing - we should be targeting the mega wealthy. It feels like this topic is another way to turn the everyday people against each other rather than focussing on the real problem.
 
I think what we are reading on here are different peoples interpretation of ‘fairness’

Reeves has no chance of getting it right for everyone. There will be some pain for some.
Just wonder how understanding people will be if it hits them.
 
Matt said:
I feel like everyone should have the opportunity to save for their retirement in an equal way - and I think the 20% or 40% relief is a bit of a red herring, it should be thought of as tax free savings. This gives people (anyone!) a chance to save as much as possible whilst working, which in turn is invested (good for the economy?) and grows over the years, and they then pay tax on a much larger sum when they need it later in life (which again, good for the economy). It also puts less strain on the state if people have their own money when retired.

The "40% relief" comes from the fact that not all pensions are taken pre-tax, for example a lot of auto-enrolment pensions managed by NEST are taken post-tax and the 20% "relief" is claimed back by NEST on your behalf (e.g. you pay in £100, they will claim £20 for you). If you are a higher rate tax payer you can contact HMRC to get your tax code changed to take into account the extra 20% so you pay slightly less tax on your PAYE earnings.

Using an example above, if your pension contributions are taken from money that crosses a tax threshold, you are only eligible for the "40% relief" on the portion that is subject to 40% tax. For example if you put £500 into your pension each month, and only £250 of your salary was subject to £40% tax then you could only claim the additional 20% tax relief on £250 of your contributions.

As gramercy mentioned, if people who pay tax at 40% are made to pay 20% tax on their pension contributions, then they will be paying 20% on the way in, and 20% on the way out, which hardly seems fair compared to a base rate saver who pays nothing going in and 20% coming out.

I admit I am biased a bit as I am in the higher rate tax band, but I feel like we shouldn't be targeting these kinds of tax initiatives at the people who are doing a bit better than average because it isn't those people who are harbouring all the wealth that needs distributing - we should be targeting the mega wealthy. It feels like this topic is another way to turn the everyday people against each other rather than focussing on the real problem.
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You are not losing out if the £500 comes out of the money you are paying at 20% tax rate. The 40% relief is an unfair advantage no matter how you look at it.
 
1finny said:
I think what we are reading on here are different peoples interpretation of ‘fairness’

Reeves has no chance of getting it right for everyone. There will be some pain for some.
Just wonder how understanding people will be if it hits them.
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I think one of the problems is that the rules are too complex and quite difficult for people to get their heads around. Governments in recent years seem to have enjoyed making things complicated, maybe deliberately.
 
HolgateCorner said:
You are not losing out if the £500 comes out of the money you are paying at 20% tax rate. The 40% relief is an unfair advantage no matter how you look at it.
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How do you determine which "pot" the contributions come out of? You have to use the 40% pot first and then then 20% pot if necessary.

I guess it depends how you look at it, either the higher rate payers are getting more relief (40% vs 20%), or everyone is paying the same amount of tax on pension savings (0%)
 
Matt said:
How do you determine which "pot" the contributions come out of? You have to use the 40% pot first and then then 20% pot if necessary.

I guess it depends how you look at it, either the higher rate payers are getting more relief (40% vs 20%), or everyone is paying the same amount of tax on pension savings (0%)
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I’m stuck on this 😳
I can’t get past the fact one person gets £40 back and one person gets £20 back on £100 invested in a pension.

The only reason that happens is one is paid more than the other.

Change it so the nurses and teachers get the £40😂
Only joking of course - but they need more help to save.

I’d equalise if so everyone gets the same amount back
 
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