I've been flicking through a 417 page consultation into reforming the UK tax system over the next decade ( www.2020tax.org ) put together by City AM's Allister Heath, together with the TaxPayers' Alliance and Institute of Directors, and talking it over with regular MoneyWeek and CityAM reader Nick Reid.
I'm short on time today so here's Nick's take on it (which by the way I entirely agree with). I'll be writing more on the idea of a standard flat tax later in the week.
"The central tenet of the consultation is not one to argue with. It is that the UK tax system is horrendously complicated and that this results in all manner of economically damaging avoidance scams and poorly directed investment. The solution isn't bad either. Heath and co recommend a massive simplification of the tax regime, the abolition of many trying taxes, and the setting of a standard 30% flat rate of tax on all forms of income.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
"All music, I'm sure, to the ears of MoneyWeek commentators and readers alike.
"However, there is one fundamental area where Allister Heath's argument falls into inconsistency: when he discusses the abolition of Inheritance Tax. He claims, when proposing the abolition of stamp duty and IHT: 'At the moment, a pound earned by a worker is taxed and triple taxed: there is income tax, National Insurance (of two different kinds) and then more tax when for example the worker buys a house (stamp duty) or when she dies (inheritance tax).'
"But while this is certainly true for stamp duty, it simply isn't the case for inheritance tax. The woman who dies doesn't pay inheritance tax on her money. She's no longer available to do so. Instead, it is the people who inherit from her who pay inheritance tax they get an unearned lump sum as a result of her death. Allister Heath claims that there are only two types of income that should be taxed; that earned through labour and that earned through capital investment. The unearned income derived from the death of a parent relation or friend doesn't fall into either of these two categories.
"Yet to the person receiving the inheritance there is no economic difference between receiving a £100,000 sum from a deceased parent or receiving a £100,000 bonus from a generous employer. Yet, one would quite rightly expect to pay income tax on a bonus. So why not treat all forms of income equally? That, after all, is what the commission is aiming to do. Indeed take it to its logical extreme and all cash gifts made should always be subject to tax.
"It makes sense that money shouldn't be taxed twice. But the nub of most tax systems is that money which is in constant circulation - is taxed at every stage it is passed on. We all buy things out of taxed earnings, that provides an income to others, who then pay tax on that income. And so it goes round. Getting rid of IHT would represent a nice tax cut for the better off. But it would be an odd gap in what otherwise is supposed to be a consistent simplified and fair tax regime."
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Our pension system, little-changed since Roman times, needs updatingOpinion The Romans introduced pensions, and we still have a similar system now. But there is one vital difference between Roman times and now that means the system needs updating, says Merryn Somerset Webb.
-
We’re doing well on pensions – but we still need to do betterOpinion Pensions auto-enrolment has vastly increased the number of people in the UK with retirement savings. But we’re still not engaged enough, says Merryn Somerset Webb.
-
Older people may own their own home, but the young have better pensionsOpinion UK house prices mean owning a home remains a pipe dream for many young people, but they should have a comfortable retirement, says Merryn Somerset Webb.
-
How to avoid a miserable retirementOpinion The trouble with the UK’s private pension system, says Merryn Somerset Webb, is that it leaves most of us at the mercy of the markets. And the outlook for the markets is miserable.
-
Young investors could bet on NFTs over traditional investmentsOpinion The first batch of child trust funds and Junior Isas are maturing. But young investors could be tempted to bet their proceeds on digital baubles such as NFTs rather than rolling their money over into traditional investments
-
Negative interest rates and the end of free bank accountsOpinion Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK banking system slightly less awful, says Merryn Somerset Webb.
-
Pandemics, politicians and gold-plated pensionsAdvice As more and more people lose their jobs to the pandemic and the lockdowns imposed to deal with it, there’s one bunch of people who won’t have to worry about their future: politicians, with their generous defined-benefits pensions.
-
How the stamp duty holiday is pushing up house pricesOpinion Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb.
