Tax shizzles

[mik]

Prompted by Ascender posting again in the Tax Return thread.

Warning: Rambling is likely here

So the other day I was reminded of this dummy who refused to accept that he was in the top 5% of earners. He's possibly earned good money for a couple of years, now has a bigger house with a bigger mortgage and has disposable income not dissimilar to what he had before, and is wondering WTF is going on as he looks with bemusement at others houses/cars/Balenciaga clothing collections. And of course the top 5% puts him into the same category as people like Mr Sunak.

Speaking of which - released tax return (summary) shows Sunak paid just over £1m in tax over the last 3yrs on earnings of a smidge less than £5m. Most of the earning coming from interest and dividends from his considerable savings/company stockholdings. His tax rate therefore equating to 22% (and would have been a rather lower % of course if he hadn't had no choice other than to pay PAYE on his role as PM). All seems perfectly fair.

Which then reminded me that I had a poke around companies house relatively recently to get info on a known wealthy bloke for a mate. It was very much blind leading the blind as I am no expert in this process or accounts, but as I snuffled clumsily around the records, I was amused/confused to see that Bloke had been retired for years, yet is still a director in 7 companies. One of the companies submitted accounts last year showing over £9million in the bank for his wholly-owned company whose purpose is "Other letting and operating of own or leased real estate". He has another wholly-owned company whose purpose is "Buying and selling of own real estate", and some of the other companies seem to have one shareholder which is one or other of these companies. It's clearly a twisted web, but I have to believe said web is created to provide opportunities for "tax efficiency", and/or vehicles to pass ownership of estate to sprogs without triggering inheritance tax

Clearly all legal and correct, so I am not sure that I am making any point here. Other than to sympathise a little with Question Time bloke - partly 'cos I see where he is coming from (our system is to tax earnings, not wealth) and partly 'cos he's unable to coherently state the point he was probably trying to make.

[Sundayjumper]

I Googled and found this from the Guardian, which includes a bit more depth on earnings vs. wealth. It reckons that to be in the top 5% by wealth would mean having around £1.7m of assets. It's easy to imagine situations where you have income but not wealth, or vice-versa.

https://www.theguardian.com/politics/20 ... ers-labour

[Jobbo]

I do wonder how many people don't appear in the top 5% stat because their earnings are almost all dividends not salary. Quite a lot of IT contractors, for instance, and SME company owners.

[Jobbo]

I Googled and found this from the Guardian, which includes a bit more depth on earnings vs. wealth. It reckons that to be in the top 5% by wealth would mean having around £1.7m of assets. It's easy to imagine situations where you have income but not wealth, or vice-versa.

https://www.theguardian.com/politics/20 ... ers-labour

That's just about age, all else being equal. If you are earning £80k straight out of university your wealth be small - even negative is student loans are taken into account. If you keep earning that £80k and buy a house, pay off the mortgage and have other savings, pension etc then by the time you're 50 you're going to have a lot more wealth. I've ignored inflation there but I don't think it alters the point.

[Sundayjumper]

Or, you've constantly taken on increasing levels of finance, car loans, remortgaging on interest-only deals to pay for exotic holidays and other treats, ever increasing payments simply in line with your income and get to retirement age still with more or less zero net assets.

My Dad's best mate has done exactly that. I suspect it's more common than many people would like to admit.

[Rich B]

It's probably harder to understand being in the top 5% when everyone around you is also in the same bracket. Most people I work with and most of my mates are in that because we live in the south just outside london. None of us have a lambo or a lavish lifestyle, but everyone has very normal houses that are £500k+.

However, I accept that if you compared earnings with 90% of the UK. it clearly put us at the top.

[Jobbo]

Or, you've constantly taken on increasing levels of finance, car loans, remortgaging on interest-only deals to pay for exotic holidays and other treats, ever increasing payments simply in line with your income and get to retirement age still with more or less zero net assets.

My Dad's best mate has done exactly that. I suspect it's more common than many people would like to admit.

That's true, though simply buying a house, even on an interest-only mortgage, should have increased such a person's wealth over the period. I assume your Dad's best mate is in his 70s and has no plan to repay his mortgage before he dies at this point - maybe it is a good way to be

Did make me think of this. Does he smell of Joop?

[Sundayjumper]

...though simply buying a house, even on an interest-only mortgage, should have increased such a person's wealth over the period.

Not if you've re-mortgaged multiple times to release capital and spent it on holidays and leasing fancy cars ...

[Rich B]

Or, you've constantly taken on increasing levels of finance, car loans, remortgaging on interest-only deals to pay for exotic holidays and other treats, ever increasing payments simply in line with your income and get to retirement age still with more or less zero net assets.

My Dad's best mate has done exactly that. I suspect it's more common than many people would like to admit.

That's true, though simply buying a house, even on an interest-only mortgage, should have increased such a person's wealth over the period. I assume your Dad's best mate is in his 70s and has no plan to repay his mortgage before he dies at this point - maybe it is a good way to be

Did make me think of this. Does he smell of Joop?

I work with a guy who knew them when he was young (yes, he's Irish) - I didn't realise that anyone else would have known them! Great track!

[Jobbo]

I think I found Horse Outside because someone posted it on Evo back in the day. Followed them ever since. I was quite surprised to find Dad's Best Friend featured on the T2:Trainspotting soundtrack.

[mik]

I think I found Horse Outside because someone posted it on Evo back in the day.

I was about to say "Shirley we all know of them 'cos of Horse Outside". I have to admit though that I wasn't familiar with Dad's best mate. Although - no seatbelt.

[Jobbo]

Quick, Twitter pile-on for the complete disregard for road safety