Podcast Summary
Million Ordinary Workers to Become Higher Taxpayers: By 2027 and 2028, over a million workers will be higher rate taxpayers due to the government's freeze on tax thresholds, exacerbated by current high inflation rates.
The government's freeze on tax thresholds is leading to more ordinary people being dragged into higher tax brackets, including income tax, dividend tax, capital gains tax, and inheritance tax. This fiscal drag effect, as it's called, means that people's wages or asset values aren't keeping up with inflation, resulting in a significant portion of their pay rises being eaten up by taxes. According to a report by the Institute for Fiscal Studies, by 2027 and 2028, over a million workers in various professions, including nurses, teachers, machinists, and electricians, will be higher rate taxpayers due to this policy. This trend is particularly concerning given the current high inflation rates, which are eroding the purchasing power of people's money. The report emphasizes the need for the government to address this issue and raise tax thresholds to prevent further financial hardship for working Brits.
Tax on larger population, originally for the rich: The proposed increase in higher tax threshold affects 7.8 million people, making it a concern for intergenerational fairness as it was originally intended for the wealthy.
The proposed increase in the higher tax threshold from £50,000 to £57,000, which is expected to affect 7.8 million people by 2027-28, is a significant jump from the initial intention of this tax being a tax on the rich. This tax, originally intended for the wealthy, is now being levied on a much larger proportion of the population, leading to concerns about intergenerational unfairness. The IFS study suggests that the threshold would need to be almost doubled to almost £100,000 to return it to its original purpose. This trend of taxes originally designed for the rich being applied to a larger population is a concerning development, and the potential impact on various aspects of people's lives, such as housing and pension schemes, further exacerbates the issue. The debate around this issue is likely to be a hot political topic in the coming years.
Complex tax system and intergenerational unfairness: The tax system's complexity and perceived unfairness towards younger generations can lead to public dissatisfaction and political consequences, as seen with the National Insurance tax increase and the UK's conservative party's reputation being challenged.
The tax system's complexity and the perception of intergenerational unfairness can lead to public dissatisfaction and political consequences. The example discussed was the National Insurance tax increase, which disproportionately affected younger generations while pensioners were exempt. This situation, coupled with a history of tax increases under conservative governments, has led to a tipping point where people feel they've had enough. The competence and low-tax reputation of the conservative party is being challenged, and the Labour Party's Keir Starmer only needs to appear competent and promise not to raise taxes to gain favor with voters. To address these issues, significant tax relief or reforms might be necessary, but the difficulty lies in implementing them without causing further dissatisfaction or financial strain.
Freezing tax thresholds impacting more ordinary people: The freezing of tax thresholds for income and inheritance tax is making these taxes more burdensome for ordinary people due to high house prices, inflation, and emotional toll of inheritance.
The freezing of tax thresholds, particularly for income tax and inheritance tax, is making these taxes designed for the rich, increasingly burdensome for more ordinary people. The high house prices and inflation have significantly increased the number of people being caught in the inheritance tax net, and even those who inherit money may not consider themselves wealthy due to the emotional toll of losing a loved one. However, the number of estates paying inheritance tax is still relatively low, but the trend is projected to continue. Once an individual goes above the inheritance tax threshold, the tax rate of 40% can be a substantial sum. Overall, the freezing of tax thresholds is seen as unfair and unconservative, as it was originally intended for the wealthy, but now impacts a larger portion of the population.
UK Inheritance Tax: A Complex and Unfair System: The UK's inheritance tax system is criticized for being complex, unfair, and penalizing the unmarried, childless, and those who haven't engaged in tax avoidance schemes. The 40% rate is considered high and unpalatable, and some suggest a lower rate of 20%.
The UK's inheritance tax system, while allowing spouses or civil partners to effectively double their tax-free allowance, is criticized for being complex, unfair, and penalizing the unmarried, childless, and those who have not engaged in tax avoidance schemes. The system is seen as a tax on money that has already been taxed, and the rate of 40% is considered high and unpalatable to many. The system also includes outdated annual gifting allowances. While some argue that inheritance tax is a tax on success, others believe it unfairly targets the middle class due to rising house prices. A common suggestion to reform the system is a lower inheritance tax rate, such as 20%.
Is it fair to tax the deceased?: Many feel IHT unfairly targets the middle class and disproportionately impacts them, despite being initially intended for the wealthy.
The inheritance tax (IHT) is a contentious issue, with a significant portion of readers (48%) voting to abolish it altogether. However, this extreme option may be too drastic, as the tax currently affects a large number of middle-class individuals (1 in 20), who feel unfairly targeted. Other popular options include raising the threshold (27%) and cutting the 40% rate (12%). Many people feel that IHT is a morbid tax that catches relatively successful individuals who have paid taxes throughout their lives, only to leave their families with a large bill upon their death. The tax was initially intended for the wealthiest, but it now disproportionately impacts the middle class. The debate around IHT raises questions about what constitutes wealth and whether there is a fairer system. The complexity and emotional burden of dealing with IHT are significant factors contributing to its unpopularity.
Is the inheritance tax worth it?: Speaker suggests reducing or abolishing inheritance tax due to small contribution to UK's tax take and potential simplification benefits, while markets continue to rally with unclear catalysts and low volumes, key data points next week include global PMI and UK inflation.
The discussion revolved around the debate over the inheritance tax and whether it's worth keeping or not. The speaker argued that if the tax take from it is only 1% of the UK's entire tax take, it might be worth considering a reduction in the rate or even abolishing it altogether. They also mentioned that many countries don't have estate taxes and suggested simplifying the tax by setting a threshold and having a fairer rate. On the markets front, Sam North of Etoro discussed the recent record highs of the Nasdaq, S&P 500, and Dax, but noted that the catalyst for the rally is unclear, with some attributing it to the resolution of the debt ceiling drama and others to the positive earning season. He also mentioned that volumes are low and markets might need a new story to move significantly higher or lower. Next week, global PMI data and the latest UK inflation figure are some of the key data points to watch out for.
The Real Value of Money Has Decreased Significantly Due to Inflation: Investing in equities is a good long-term strategy, but understanding nominal vs real returns is crucial due to inflation's impact on savings value.
Despite the high inflation rates and the seemingly attractive savings rates, the real value of money has decreased significantly over the past few years. According to Ed's article, if you had put $10,000 in a global equity fund since the start of 2020, it would have grown to £17,705 in nominal terms, but only £7,025 in real terms after adjusting for inflation. Similarly, £10,000 in property would have grown to £2,130,049 in nominal terms but only £213,004 in real terms. Even keeping money in a current account with no interest would have been better than having it in an instant access savings account, which lost 16.1% in real terms. The lesson here is that while it's important to save, it's equally important to consider the impact of inflation on the value of your savings. Long-term investing in equities remains a good strategy, but it's crucial to understand the difference between nominal and real returns. Additionally, the UK retail sales and earnings reports, as well as US GDP and inflation data, will be important economic indicators to watch out for in the coming days.
Investing to Beat Inflation: The Importance of Long-Term Investments: Investing in property and stocks for the long term can help individuals beat inflation and secure their financial future, but come with risks. Financial institutions should return profits to members, but holding them accountable is crucial.
Inflation can significantly reduce the value of money over time, making it essential for individuals to invest to beat inflation and secure their financial future. The data presented by Ed from AJ Bell illustrates this point, showing that £10,000 in 2011 would be worth only £7,611 or £8,010 when adjusted for inflation, depending on the interest rate. Property and investing have been the most effective ways to beat inflation, but even these methods come with risks. The studies by Barclays Equity Gilt Study and Credit Suisse Yearbook support this notion, emphasizing the importance of long-term investment and cautioning against trying to actively manage investments, which can lead to underperformance. Meanwhile, financial institutions like Nationwide Building Society have been making substantial profits as interest rates rise, and they should return some of these profits to their members in the form of better savings and mortgage rates. However, members have criticized Nationwide for not passing on enough of these profits to them, and the society faces a challenge in balancing member expectations with the need to remain competitive. In summary, it's crucial to invest for the long term, be cautious about investment choices, and hold financial institutions accountable for passing on profits to their members.
Nationwide Offers £100 to Members Amid Debate on Executive Compensation and Food Discount Apps: Nationwide rewards members with £100, while some debate executive pay. Food discount apps offer savings, but consumers must compare prices effectively.
Nationwide Building Society is offering £100 to eligible members based on having a current account, qualifying savings, or a mortgage with them as of March 31, 2023. Debate ensued about the executive compensation at Nationwide and the possibility of redistributing the salary among members. Additionally, food prices have risen by nearly 20% in the past year, leading some to explore options like using apps to buy discounted food with expired or close-to-expired dates. While these apps can offer significant discounts, it's crucial for consumers to be aware of the regular retail prices and compare effectively. For instance, a reporter found that a box of discounted goods from one such app, Moteatoes, was advertised as having a 42% discount on a retail price, but the same item could be found for less elsewhere.
Saving Money on Food: Alternative Options to Supermarkets: People save money on food by shopping at Approved Foods and Get Discounted for items near best before dates, considering existing stock, and switching brands due to food inflation. Poundland is another alternative for some. However, these websites aren't for weekly shops, but for specific bargains.
People are becoming more conscious of their food spending and are looking for ways to save money without compromising on quality or expiry dates. Two websites, Approved Foods and Get Discounted, offer discounted items that are close to their best before dates. However, it's important to consider the quantity of such items already present in one's home before stocking up. Some people have a "love-hate" relationship with supermarkets due to loyalty cards and data collection, driving them to explore alternative options like Poundland. Food inflation is also leading people to switch brands when prices rise. While these websites may not be suitable for a weekly shop, they can be useful for finding bargains on specific items. Ultimately, it's essential to know your price points and understand that fresh produce doesn't have best before dates; you can rely on your senses to determine their freshness.
Stay Informed and Engage in Financial Discussions: This is Money encourages staying updated on financial news and engaging in discussions. Download their app or visit their website for resources, and share comments, questions, or feedback.
Importance of staying informed about financial news and having the ability to engage in discussions and debates on various financial topics. The team on This is Money encourages their audience to stay updated by visiting their website or downloading their app. They also welcome comments, questions, and feedback via email or social media. A humorous anecdote about checking the freshness of yogurt was shared, but the main focus was on the importance of being involved in the financial conversation. Additionally, they recommended checking out the Digest and Invest podcast by eToro for those interested in trading and investing.
