Protecting against political risk to retirement income

[DiamondEcho]

This is a break-out topic from another on this board where Lootman wrote:

For me, the biggest risks ahead are political. Having a few million is fine in most scenarios but people like us will be in the cross-hairs of a future government that is either ideologically opposed to success and prosperity (like Corbyn, perhaps?). Or in the event of a crisis, like the inability to fund the NHS, the state pension or public sector pensions when, again, the government will seize wealth where they can.
Ensuring a desirable lifestyle in the face of such an environment is about more than having money and assets. It's about how you can immunise yourself against political risk. 38 years of Thatcherite free-market nirvana may have made us complacent.

To which I replied:

...So then the question you ask comes into play, it might be appropriate for it to stand alone in it's own topic. What do you do? In previous times you might have put it in a 'Swiss bank account', but that no longer exists for that purpose. Do you put it in a form of offshore trust so capital and income generated isn't taxed at source, it can accumulate gross, but might be liable to tax on repatriated funds?
This is a question I'm considering instructing an 'expert' to guide me on. A Chartered Financial Planner, a tax expert? Don't know, I'm not even sure how to start to figure out an answer.

[thebarns]

If we are looking to possible solutions to this, I suggest that dispersing some of the assets that give rise to the income around family members, if possible.

Clearly this is difficult with the main house or pension assets, but less so with ISAs, second properties, other assets.

It is not entirely dissimilar to considering the problem of paying for old age care though I would be more prepared to do that, than see some envious red leech grab hold of hard earned assets via some wealth tax.

There are risks with passing some of these assets to family members, however it may mitigate a wealth tax grab if it helps reduce the large pot to smaller pots.

The one I really want to do is start up another political party that speaks for the interests of the middle classes and the private sector !!!!!!!

[Chrysalis]

For some reason, I can't see this thread in the list of titles, only if I click through from the link in the earlier thread. Anyone know why?

[Chrysalis]

Oh, now I can...

[TUK020]

Emigrate?

[Alaric]

It's an interesting question as to what forms of wealth accumulation are tolerated and what are discouraged.

From the 1988 Lawson Budget which cut higher rate taxes to a maximum of 40%, it's been possible for those whose expenditure didn't exceed their income, to accumulate personal wealth.

Socially acceptable outlets have included your primary residence and the land underneath it, plus pensions and ISAs up to contribution limits. Accumulating wealth by building a buy to let housing portfolio or accumulating wealth in a private service company is evidently frowned on given recent tax changes.

Wealth distribution by age is not something that those of a Socialist persuasion have devoted much attention to.

If you have a regular monthly or weekly income from employment, you can get by without any wealth. If you don't then to survive you need either or both of personal wealth and State support.

[Chrysalis]

Personally, I've found that as I've got richer over my lifetime, my tax payments (as a proportion) have fallen (due to the various reliefs and allowances made available). This has surprised me, and I agree with Warren Buffet that it does not seem right.
I think you are correct to identify that wealth at present is very lightly taxed and therefore that wealth taxes may be on the agenda (regardless, I would suggest, of the colour of the government).
This might make me slightly less rich, but not destitute. It's not something I lose too much sleep over.

[Lootman]

I think you are correct to identify that wealth at present is very lightly taxed and therefore that wealth taxes may be on the agenda (regardless, I would suggest, of the colour of the government).

Just the other day Corbyn talked about addressing "inequality" and I think that is a reference to inequality of wealth rather than income. And the left-wing intellectuals who like to drone on about inequality see the solution as a tax on wealth directly.

Now inheritance tax is a direct attack on wealth but that's too easy to finesse to satisfy the redistributive aspirations of Marxists like McDonnell. He will surely be tempted by a French-style annual wealth tax of, say, 1% and will sell that by applying it only on the "rich" (to be defined but probably including many here).

Personally I would start preparing my finances and family for emigration if there was any whiff of a Corbyn-style government. But even the Tories will probably be looking for new revenues as the deficit grows and the pension and healthcare liabilities rise. I just don't trust any politicians at this point. None of them have the spine to cut spending on welfare, pensions and healthcare.

Despite the Thatcher revolution, the idea that success is "lucky" and that wealth is almost "ugly" has never really been vanquished in the way that the US has done. And a wealth tax in the US is unconstitutional and would require an amendment to the constitution. We do not have that protection here.

[UncleEbenezer]

Despite the Thatcher revolution, the idea that success is "lucky" and that wealth is almost "ugly" has never really been vanquished in the way that the US has done. And a wealth tax in the US is unconstitutional and would require an amendment to the constitution. We do not have that protection here.

At least some US states tax property heavily. A figure that sticks in my mind is my colleague paying $5k/year on his family house worth $170k. A very effective way to discourage rentierism and London-style money-laundering, and as a side-effect, keep decent houses affordable.

Taxes may be different and (in this instance) much more sensible, but you still get to pay!

[DiamondEcho]

Emigrate?

Hmm, I've been outside the UK for 9 years and am looking forward to finally returning next year. Emigration might suit if your belief is that there will be 'no going back', but I don't underestimate the challenges it brings, nor the challenge of being able to make that judgement.
When I originally left the UK as a 'trailing spouse' to my wife's nomadic career I believed it would be for 3-4 years max, but it'll end up as 10. I've known many people in a similar position, usually people who go to work abroad, who then get cross-posted to another country, and another...
So on the downside as a Brit but non-resident I have been and remain ineligible for the mainstream UK tax-efficient savings vehicles, ISAs etc. But perhaps there might be some opportunity open to me to get my affairs established in a more tax-efficient and Corbyn-proofed way prior to repatriation.

If anyone has had any experience of such arrangements I'd be grateful to hear it. Alternatively if anyone knows the collective name of the kind of professional advisor who might guide me on this I'd also be grateful. Is it a 'Chartered Financial Planner', perhaps one with some experience of Brit expat affairs?

[Alaric]

He will surely be tempted by a French-style annual wealth tax of, say, 1% and will sell that by applying it only on the "rich" (to be defined but probably including many here).

There's also the example of a "platform fee". Suppose for example the Government charged its own fee on SIPPs and ISAs for "access" to investment vehicles that were free of income tax, dividend tax and capital gains tax. You would have to make it universal as if you didn't collect it for "small" values, everyone would spread their wealth over as many institutions as possible.

[dspp]

Emigrate?

Hmm, I've been outside the UK for 9 years and am looking forward to finally returning next year. Emigration might suit if your belief is that there will be 'no going back', but I don't underestimate the challenges it brings, nor the challenge of being able to make that judgement.
When I originally left the UK as a 'trailing spouse' to my wife's nomadic career I believed it would be for 3-4 years max, but it'll end up as 10. I've known many people in a similar position, usually people who go to work abroad, who then get cross-posted to another country, and another...
So on the downside as a Brit but non-resident I have been and remain ineligible for the mainstream UK tax-efficient savings vehicles, ISAs etc. But perhaps there might be some opportunity open to me to get my affairs established in a more tax-efficient and Corbyn-proofed way prior to repatriation.

If anyone has had any experience of such arrangements I'd be grateful to hear it. Alternatively if anyone knows the collective name of the kind of professional advisor who might guide me on this I'd also be grateful. Is it a 'Chartered Financial Planner', perhaps one with some experience of Brit expat affairs?

DE -
A personal recommendation is that you contact CasterBridgeHardy. https://www.casterbridgehardy.co.uk/ A small accountancy practice that is highly personalised. The principal (Roger) is ex HMRC. Thet used to do the books on one of my companies and I think they will be suitable advisers for you. I am posting this openly for the benefit of others.
regards, dspp

[JohnB]

The best way to avoid tax is to keep out of the top 5% of the population in any asset class by diversification. There is less political sympathy to the rich in a range of areas, but any legislation, be it ISA pot caps or mansion taxes is not likely to be joined up into a combined wealth+income regime that assesses it all, so just stay below each parapet.

Earned income is much more heavily taxed than wealth, but that's a consequence of what age groups vote, and I don't think any attempt to engage the young will out-do the baby boomer vote. If your thinking goes beyond the death of that generation, then you might see the political pendulum change, but not before that.

Of course governments can cock-up economies as well as impose new taxes, so diversification abroad also helps, though at least you can vote out our idiots, but can't for foreign ones.

[Lootman]

Despite the Thatcher revolution, the idea that success is "lucky" and that wealth is almost "ugly" has never really been vanquished in the way that the US has done. And a wealth tax in the US is unconstitutional and would require an amendment to the constitution. We do not have that protection here.

At least some US states tax property heavily. A figure that sticks in my mind is my colleague paying $5k/year on his family house worth $170k. A very effective way to discourage rentierism and London-style money-laundering, and as a side-effect, keep decent houses affordable.

Taxes may be different and (in this instance) much more sensible, but you still get to pay!

All US states tax property as far as I know. A big part of the reason for that is because education is funded locally in the US, along with law enforcement and public safety.

A high rate of property tax is considered to be about 3% of current value, which fits with your example. States with 3% property tax include Texas, Maine and New Jersey - the latter is a big deal because homes in NJ are expensive. On the other hand California voters passed their famour "Proposition 13" which limits the ability of municipalities to raise property taxes by more than 2% a year for existing homeowners.

The other thing to note about property tax is that it is only paid by property owners, versus our council tax which is levied on residents.

Also note that property tax payments are tax-deductible on both federal and state income tax returns, alleviating the burden to some extent.

[Lootman]

Earned income is much more heavily taxed than wealth, but that's a consequence of what age groups vote, and I don't think any attempt to engage the young will out-do the baby boomer vote. If your thinking goes beyond the death of that generation, then you might see the political pendulum change, but not before that.

It hasn't always been true that earned income has been taxed more than investment income. Before Thatcher, so-called "unearned income" suffered a 15% surcharge on top of ordinary tax, meaning that investment income could be taxed at a rate as high as 98%.

The modern trend to tax dividends and capital gains at lower rates is predicated on the idea that this is risk capital. There may be no dividends and you may suffer a capital loss. So it makes sense to tax investment income at lower rates, to encourage investment. It's mainstream now but didn't used to be, and in fact it was only a few weeks ago that the appalling Vince Cable was warbling about taxing capital gains at ordinary income tax rates. I doubt that McDonnell thinks differently either.

Take nothing for granted.

[Urbandreamer]

... and in fact it was only a few weeks ago that the appalling Vince Cable was warbling about taxing capital gains at ordinary income tax rates. I doubt that McDonnell thinks differently either.

Indeed so. The Liberals have long held the idea of a wealth* tax. I do have to take issue with your earlier comment about people wanting to tax the rich because they are "lucky". Many now have read Tomas Pikettys recent book that argues that the rich are rich because they got a good start by being taught by rich parents and being provided other "unfair" advantages at the start.

Personally I take the attitude that if he is right, then we should be pleased for such people. He however and many who regard themselves as socialist seem to find something wrong in parents looking out for their children and seek to remove such inequalities, usually by penalising the rich.

*Actually they WERE talking about a wealth tax rather than a gains tax a few years ago. Sometimes called a mansion tax as it was thought that it would be based upon property.

[langley59]

Taxing wealth is in most cases taxing money which has already been taxed, unlike taxing earned income. I have paid a high level of tax on my earnings over my working life and so having my investments then taxed again really is the final straw, especially when that tax is imposed by those benefiting from the proverbial gold plated public pensions. We talk on here about how much we need to retire, safe withdrawal rates and so on, just imagine having to factor in an additional x% confiscation each and every year.

How to protect oneself against that short of emigrating with all your assets in advance of it happening seems exceptionally difficult.

[JohnB]

Double taxation complaints depend on how you calculate the returns from commercial operations or lending to governments, which is what interest and dividends boil down to. For a bank people lend them money which they lend out at a premium, which after their costs including corporation tax they return to their investors as interest, dividends to their shareholders, and capital gains on their shares. Its all new economic activity, and not related to the original salary.

Only IHT is a true wealth tax, as I'd argue that stamp and excise duty and VAT are transaction taxes, again on new activity.

Cheap dig at public sector pensions too.

[langley59]

Cheap dig at public sector pensions too.

Not intended as a cheap shot at public sector pensions in general, rather at the prospective lawmakers who would confiscate wealth and jeopardise the hard earned financial security of others whilst being insulated themselves from the same fate.

[Lootman]

I do have to take issue with your earlier comment about people wanting to tax the rich because they are "lucky". Many now have read Tomas Pikettys recent book that argues that the rich are rich because they got a good start by being taught by rich parents and being provided other "unfair" advantages at the start.

Personally I take the attitude that if he is right, then we should be pleased for such people. He however and many who regard themselves as socialist seem to find something wrong in parents looking out for their children and seek to remove such inequalities, usually by penalising the rich.

Just to be clear, I was not implying that "luck" has much or anything to do with success. Only that there are some who like to project that idea to rationalise a punitive tax on such success. I don't have a lot of time for Piketty who is really just finding new ways to retread the longstanding French obsession with the rich and their endless attempts to relieve them of it. You can trace his "politics of envy" arguments all the way back to the French revolution, and of course France already has a wealth tax anyway, which is one of many reasons why I would not live there, even though the food there is divine.

What disturbs me more is that there is a fashion in the UK as well for moaning about inequality when much of that only arises because some people, like Branson, are very successful and the tax code now allows them to keep a fair bit of it. Inequality because of slavery and famine is bad. Inequality because some people do very well isn't bad at all. It's good.

But I do not trust the British electorate to restrain their natural sense of envy any more than I trust politicians to have more sense than to pander to them. I need an insurance policy against all this pettiness and spite.