Taxing times

A big downside to working for Sun is that it puts me onto bog-standard PAYE for all my main income. So I lose the tax-efficiencies I’ve hitherto used, and pay income tax in a country where taxes on earned income dwarf all other taxes, so that hard workers get to pay for the idle rich (grrr) as well as for government waste and folly (grrr) and for more deserving causes.

Today i invested the annual maximum (now £3600) in a cash ISA. That’s something I’ve been doing each year since my income from WebThing grew sufficient to support it. And I’m looking at what seems to be the only other way left to avoid Very High Tax: putting a very large amount of my income into a pension.

Now a pension is only any use if it is significantly above the government’s means-tested benefits. If I’m still renting a home when I retire that’s a non-starter, because means-tested benefits that include housing costs will leave a good deal more net income than I’m accustomed to or could save for. So to save tax, I also have to buy a house. Fortunately I can combine the two, as a pension can (in part) be used to buy a house. That is, if house prices continue downwards long enough …

The other thought that someone at Apachecon mentioned … what about moving about so much that I’m not resident in any country for tax purposes? That means living in three countries, each for clearly under 6 months a year. Or something like that. For the tax saved, I could rent somewhere adequate in each of three European countries (or indeed elsewhere, though permission to live&work outside Europe would presumably be a nightmare of red tape). Sounds like a lot more faff than I want to deal with, but it’s an interesting thought …

Posted on April 18, 2008, in tax, uk. Bookmark the permalink. 4 Comments.

  1. You’ve hit the nail on the head when it comes to retirement pensions and benefits. By far the largest single item of public expenditure in the UK is social security. The current system encourages the majority not to save (or to earn a decent income) otherwise they are taxed like crazy and don’t get their share of state “benefits” (ie redistribution of your and my taxes).

    I have no problem with an adequate non-means tested state pension based on National Insurance contributions, but regrettably NuLabour have upped means testing thus making the benefit system even more attractive to many people, whilst squeezing the basic pension (and penalising those who have saved a little and don’t want to go through the intrusive form-filling that goes with state handouts).

    Ironically, under the new tax regime launched this month, the worst off tax-wise will be poorer childless workers who will lose the 10% starting rate of income tax – all in the name of NuLabour’s obsession with supporting families with children at the expense of the rest. Us mid-range higher tax bracket types are largely unscathed, meanwhile super-rich “non-doms” escape with a miniscule fixed penalty ticket! So much for “Labour” values.

  2. Here in the States we have similar issues. April 15 was tax day here and it’s usually fairly depressing. We also have similar challenges with politicians feeling the need to redistribute wealth. We have something called the Earned Income Credit which actually gives “tax” refunds to people who didn’t even pay any tax! Crazy.

  3. Are offset mortgages tax-efficient? I’m no financial expert, but they look like it to me, so it’s been my preferred method of saving (rather than an ISA) since I bought a house.

  4. Yes, I agree about offset mortgages[1]. But they’re only an option if you’re rich enough to get a mortgage in the first place. Or, in recent times, bold enough! But it does nothing about our obscene taxes on earned income[2].

    Can’t you get the best of both worlds by opening new ISAs each year and offsetting them against the mortgage? So you still have the ISA advantages when the mortgage is paid off?

    [1] https://bahumbug.wordpress.com/2008/03/20/thinking-about-catching-up/
    [2] https://bahumbug.wordpress.com/2007/03/21/minimum-pension-95155-salary/

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