Re: Strange logic - losing out because tax rate drops from 22% to 20%


<google@xxxxxxxxxxxxx> wrote in message
news:e22a6033-24e5-4c6f-b274-4b7c57881681@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
From:
http://news.bbc.co.uk/1/hi/business/7209266.stm

In any event, we will all lose out from 6 April 2008, because on
that
date the basic rate of income tax will drop from 22% to 20%, and
that
means that we will all receive a little less tax relief on our
pension
contributions.

This is a very weird way of thinking about this IMO. If you earn
100GBP now and put it into your pension, you'll pay in 78GBP (what's
left after the tax is deducted) and the government will put in
22GBP.
Meaning 100GBP goes into your pension.

Next year, you'll still earn 100GBP but you'll get 80GBP after tax.
Pay that in and the government contributes the 20GBP tax so you
still
get 100GBP in your pension.

But the reduction in basic rate tax is being made up for by the 10%
abolition and NI rises.

People not earning anything but contributing the 3600? allowed will
lose out but I think that's about it.

No, IIRC anyone earning between about £8000 and £18000 will end up
paying more income tax, and getting less pension tax relief.

I'm not convinced most pensions are a particularly good deal anyway.
Even with 40% tax relief my pension investments over the last two
and
a bit years have underperformed my cash savings. It's only because I
also get an employer contribution that I'm up on the deal otherwise
I'd have done better paying my pension contributions into a savings
account and then paying the lump sum into a pension to get the tax
relief (I'd have needed an annual return of 1% after tax on cash to
match my pension.) I only started paying into a pension once I'd
paid
off my mortgage.

So that's a problem with what the pension is invested in, not with
pensions as a financial instrument.

The rental property that I own, as well as currently getting about a
4% rental yield has also managed something like a 10% pa capital gai
n
as well over the 14 years I've owned it. I was rather disappointed
when Mr Brown excluded residential property from a SIPP but not at
all
surprised that he did.

The only reason he did was the fear of abuse, either intentional or
due to misunderstanding. Eg some people were daft enough to think they
could use the SIPP to buy a second property which they could use as a
holiday home etc.

--
Andy


.

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