Thursday, 20 March 2014

"Why Osborne should now axe tax relief on pensions"

Graeme Leach thinks outside the box in City AM Forum:

It sounds controversial, but the progressive withdrawal of tax relief for pensions, as long as it’s used to finance direct cuts in income tax and national insurance, could be a game changer.

Tax relief on pensions costs £42bn per annum, when you add together reliefs on income tax (employer and employee) and national insurance (employer).

Given that just £30bn a year would let you reduce the standard rate of income tax from 20 to 15 per cent, and the higher and top rates to 30 per cent from 40 and 45 per cent, that’s an awful lot of money to make the case for less government.

Excellent plan, I've been saying this for ages. The so-called tax breaks for pensions all get nicked by the 'pensions industry' anyway.

Even better would be to get rid of income tax entirely*, it's not the worst tax, but all the stupid income tax breaks (mainly for pensions) are by and large absolutely awful subsidies (i.e. to the rent seekers in the financial sector); without income tax, there'd be no need for income tax breaks either.

* A flat annual charge of 2.5% of the current potential selling price of all residential housing would raise enough money to get rid of income tax; there'd be many more winners than losers, nobody would have to bother with a self-assessment return, running PAYE would be a lot simpler (NIC only) and corporation tax would be entirely voluntary - if you don't want your business to pay corporation tax, then just become a sole trader or a partnership again.


Bayard said...

"Tax relief on pensions costs £42bn per annum,"

Does that allow for the fact that you pay tax on your income from your pension fund?

Incidentally, if you buy an annuity out of taxed savings, is the income tax-free?

Mark Wadsworth said...

B, you can look up the figures yourself, the figure, net of tax exemption for pension funds and tax collected from pensions in payment (which of course includes annuities) is about £40 billion.

I had a long debate about all this two years ago, please read all the comments here.

Bayard said...

Thanks for that. I did so. It was an education.