Benjamin Franklin’s oft-quoted statement, “In this world
nothing can be said to be certain except death and taxes”, will take on a
renewed truth whatever the result of the imminent UK General Election of June 8th
2017.
The now aborted (but only temporarily) Budget measures
reducing the dividend allowance to £2000 per year from April 2018 and
attempting to raise probate fees from a flat rate of £215 to a sliding scale of
up to £20,000 shows the direction of travel in government policy.
As a soon to be non-working, single, childless person I’m
the exact opposite of the ‘hard-working family’ at the forefront of the
carefully/carelessly crafted soundbites and subsequent often ill-thought
policies masquerading as pledges that pass for contemporary politics. As such
my already taxed income and savings will be the target of whoever is the next
Chancellor.
It’s worth noting how adverse the tax position of those
seeking Financial Independence and Early Retirement has become. Prior to George
Osborne’s wheeze of abolishing the dividend tax credit system and introducing
the current £5000 per annum dividend allowance it would have been possible for
me to earn over £40,000 per annum from my investment portfolio and not worry
about income tax.
You may well ask, why should portfolios of over (say)
£250,000 be free of tax? To which my retort is simple: why should income I (and
my ancestors) have already paid tax on before investing in the assets
generating those dividends be taxed again? Why should our prudence be punished?
Those are rhetorical questions of course, as the size of the current government
deficit and debt provide some of the answer.
Rather than bemoaning this, just as my financial planning
has assumed little or no state pension and little or no occupational pension,
the recent Budgets and those likely to follow require anyone seeking or already
in the state of financial independence to assume that many if not all of the
following will come to pass:
1. The Dividend Allowance will be abolished altogether and/or
the accompanying dividend income tax rates of 7.5%, 32.5% and 38.1% will be
increased [perhaps in stages like the Insurance Tax] to match the prevailing
rates of income tax (20%; 40%; 45%).
2. Schemes providing tax relief: notably pension
contributions, Venture Capital Trusts, Enterprise Investment Schemes, will, if
they survive at all, at best have relief restricted to the basic rate of income
tax of 20%.
3. The Capital Gains Tax net will be cast more widely. The
rates are unlikely to stay at 10% and 20%. The annual allowance (currently
£11,300) may not survive at all, or at best be drastically reduced, severely
constraining the ability to swap income generating assets for ‘growth’
investments partially sold down each year to create ‘home-made’ dividends.
In short we can be certain that those of relatively moderate
means seeking to live off income from investments rather than employment will
pay more tax in the future. The only uncertainties are details and timing.
