Rlburnside
Challenge Tour Pro
I’m talking about the money the government puts in when a person tops up their pension.
Seems to me it’s free money and the more you put in the more you gain.
Is a millionaire rich nowadays?
- Thread starter Canfordhacker
- Start date
Seems to me it’s free money and the more you put in the more you gain.
Hxck
Active member
You mean the tax refund that's given? Why on earth would anyone put money into a pension at all if it's taxed twice?!
Fade and Die
Medal Winner
What a lot of people think is unfair is the tax free sum that can be taken from your pension pot, if you got a tax break paying in, why should you get one taking out.
Not me btw, I think you should get every incentive to plan for your retirement… don’t be a burden on the welfare state.
Hxck
Active member
Yeah I've heard that one a lot, the good old I don't get it so neither should anyone else
.I like to refer people to the pub vs tax analogy, think it sums up the current situation very well.
Suppose that once a week, ten people go out for a beer and the bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this…
The first four (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
And the tenth (the richest) would pay £59.
So, that’s what they decided to do.
The ten people drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten would now cost just £80.
The group still wanted to pay their bill the way we pay our taxes. So the first four were unaffected. They would still drink for free but what about the other six? The paying customers? How could they divide the £20 windfall so that everyone would get their fair share?
They decided to follow the principle of the tax system they had been using and they proceeded to work out the amounts that each should now pay.
And so, the fifth person, like the first four, now paid nothing (a 100% saving).
The sixth now paid £2 instead of £3 (a 33% saving).
The seventh now paid £5 instead of £7 (a 28% saving).
The eighth now paid £9 instead of £12 (a 25% saving).
The ninth now paid £14 instead of £18 (a 22% saving).
And the tenth now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.
But, once outside the bar, they began to compare their savings. “I only got £1 out of the £20 saving,” declared the sixth person. He pointed to the tenth person, “but he got £10!”
“Yeah, that’s right,” exclaimed the fifth person. “I only saved a £1 too. It’s unfair that he/she/they got ten times more benefit than me!”
“That’s true!” shouted the seventh. “Why should they get £10 back, when I only got £2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four in unison, “we didn’t get anything at all. This new tax system exploits the poor!
The next week the tenth person didn’t show up for drinks, so the nine sat down and had their beers without them. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!
Rlburnside
Challenge Tour Pro
No it’s not really a refund , as soon as you top up your pension pot the government puts money in as well.
The more you put in the more the government put in.
Voyager EMH
Slipper Wearing Plucker of Pheasants
The government don't really put money in.
They merely don't take the income tax off the money that the person is putting in. (rebate)
The income tax is taken off when they take the money out of the pension fund.
Voyager EMH
Slipper Wearing Plucker of Pheasants
The beer drinkers are spending money.
We do not have different prices for ordinary goods depending on income and wealth.
Wealth is distributed very unevenly throughout the country.
If we were all required to pay the same amount of tax, a great many would have to be put in a debtors jail.
The analogy is humorous - but essentially flawed.
Tax is pooling our money to buy things for the whole country. It is not a personal loss. It is a contribution towards creating a decent country.
Tax needs to be in proportion to income and wealth for it to be practical and effective.
Finding more and more things to put VAT on and increasing the rates of VAT, something that has happened over the last 40 years, has been an increase in tax inversely in proportion to income and wealth.
If the 10 beer drinkers all paid £1 each for a beer and 20p of that was tax,
The lower the person's income - the greater % proportion of that income is being paid in tax.
What steps can the lower paid take to avoid paying such huge proportions of their income on VAT for essential items?
I'm sure they would really like to be able to do this in order to that their children can have more money and a better way of life. But just no chance of that for them.
This is why I find it hard to have sympathy for well off people who feel the need to take steps to avoid IHT.
And total yearly IHT revenue is tiny compared with the VAT contributions from people who will never pay IHT.
In the 10 beer drinkers scenario, if they all paid £1 and the tax on top of that was in proportion to income, then the poorer ones might add a few pennies are the higher paid ones might add a few pounds.
But the departure of the wealthiest one would make no difference to what the others pay for their beer.
I often hear gripes from high income people about how much tax they pay. But most often they are not considering all taxes as a proportion of income compared with those on average and lower incomes who also get "clobbered" with the flat rate VAT on essentials that is unavoidable.
We do not have different prices for ordinary goods depending on income and wealth.
Wealth is distributed very unevenly throughout the country.
If we were all required to pay the same amount of tax, a great many would have to be put in a debtors jail.
The analogy is humorous - but essentially flawed.
Tax is pooling our money to buy things for the whole country. It is not a personal loss. It is a contribution towards creating a decent country.
Tax needs to be in proportion to income and wealth for it to be practical and effective.
Finding more and more things to put VAT on and increasing the rates of VAT, something that has happened over the last 40 years, has been an increase in tax inversely in proportion to income and wealth.
If the 10 beer drinkers all paid £1 each for a beer and 20p of that was tax,
The lower the person's income - the greater % proportion of that income is being paid in tax.
What steps can the lower paid take to avoid paying such huge proportions of their income on VAT for essential items?
I'm sure they would really like to be able to do this in order to that their children can have more money and a better way of life. But just no chance of that for them.
This is why I find it hard to have sympathy for well off people who feel the need to take steps to avoid IHT.
And total yearly IHT revenue is tiny compared with the VAT contributions from people who will never pay IHT.
In the 10 beer drinkers scenario, if they all paid £1 and the tax on top of that was in proportion to income, then the poorer ones might add a few pennies are the higher paid ones might add a few pounds.
But the departure of the wealthiest one would make no difference to what the others pay for their beer.
I often hear gripes from high income people about how much tax they pay. But most often they are not considering all taxes as a proportion of income compared with those on average and lower incomes who also get "clobbered" with the flat rate VAT on essentials that is unavoidable.
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Fade and Die
Medal Winner
If only eh?
