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Why the Middle Classes in the UK should be very afraid

There have been so many benefits withdrawn and taxes increased for the middle classes in the last decade, that I wonder if anyone in this income bracket really appreciates the collective magnitude of harm that has been done to their quality of life by their government in this timespan. Did I say government? Maybe I meant gangster overlords.


  • Withdrawal of child benefit

Child Benefit was a universal benefit from its introduction in 1975. However, it became means tested from 7 January 2013. Today, those earning more than £50,000 per year have part of their benefit withdrawn, and those earning over £60,000 receive nothing at all. This amounts to a loss of £1,1,34 per annum for the eldest child and £751 per annum for every subsequent child.


It has recently been reported widely in national newspapers, that as the cost of living rises, around 50,000 families will be eligible for Universal Credit (UC) - despite one member earning over £50,000. It is said that this will lead to a 'messy' situation where their UC and child benefit are both being withdrawn at the same time as they earn more money. Of course, there will also be deductions for income tax, National Insurance, student loan repayments and pension on top of that. Think tank the Resolution Foundation warned this means that combined, between 80p and 96p of every extra £1 these people earn will never reach their bank account. That is to say they will be taxed at rates between 80% and 96% for every pound between £50,000 and £60,000 that they earn. And these people aren't even what you might call middle class. They are people claiming Universal Credit!


  • Increases in income tax and other similar taxes

In the tax year 2009-2010, the tax rate on all income in the UK over £43,875 was 40%. Today, if you live in England, Wales or NI, you pay 40% on income over £50,271 (and 45% on income over £150,000). But £43,875 in 2009 is equivalent to £69,555 today if you allow for inflation. So today you are effectively paying 40% instead of 20% on an extra £19,284 which amounts to an extra £3,857 per annum.


And it's even worse in Scotland where today you pay 41% on income over £43,663 instead of 40% on income over £50,271 (and 46% instead of 45% on income over £150,000), which means Scottish taxpayers pay much more than their UK counterparts.


And it is only going to get worse from April 2023 when the threshold for the highest rate of income tax drops from £150,000 to £125,140 across the UK.


And even worse still for those living in Scotland who will see their higher rates of tax rise to 42% and 47% respectively, making them a full 2% higher than the rest of the UK.


And as if it couldn't get any worse (but it is), income tax allowances and thresholds, as well as National Insurance and Inheritance Tax thresholds, will now be fixed until April 2028. This is an enormous 4.5 years away! So while inflation continues to ravage the value of the pound in your pocket, the amount you are allowed to keep before paying income tax, NI or inheritance tax will effectively reduce.


  • Increase in Council tax for bands E to G

In April 2016, the Scottish government raised the amount of Council tax people living in properties in bands E , F, G and H would pay. This increase was only for these higher rated properties, it was not imposed on those living in bands A, B C or D.


Now perhaps you think that is fair. But bear in mind that the Council tax system was already skewed such that higher banded properties paid more; significantly more. So this was simply an increase upon an increase. For band E, the multiplier (against a Band D property) increased from 1.22 to 1.31. For band F it went up from 1.44 to 1.63. For band G the multiplier increased from 1.67 to 1.96. And for band H it increased from 2.00 to 2.45.Once again, the middle classes were being soaked by that woman (Sturgeon) and her obsessive hatred of anyone with sufficient clout to support themselves.


All very telling that Sturgeon is prepared to increase the tax on those with the supposed largest properties, yet isn't prepared to do a check that property values haven't altered since they were last set in 1991 (now 31 years ago!). Fairness and accuracy clearly doesn't come into it at all, despite her telling us this is the name of the game.


  • Increase in Council tax for second homes

There was a time when you didn't even pay Council tax on a second home, because the government rightly agreed that a person can only be in one place at a time, and only call on local services in one place at a time, and thus owners of second homes were no more likely to use local services than those that only had one home.


Then government decided that those that could afford a second home ought to pay some Council tax because they obviously had too much money, and Council tax was applied at rates from 10-50%.


Then later, government decided that giving a discount to second home owners was somehow immoral, and they should pay the full Council tax (100%), even though the owner clearly couldn't be using twice as many local services as a single home owner.


Today, second home owners face the prospect of being soaked for DOUBLE the Council tax rate, which means that anyone with a second home will be paying the equivalent of THREE Council taxes (two for the second home and one for their main residence).


The Government’s Levelling Up and Regeneration Bill which was announced in May 2022 will give Councils the power to introduce a 100% Council Tax premium on second homes Cornwall Council, for example, are planning on forcing second home owners to pay DOUBLE Council tax by 01 Apr 2024.


Clearly, any form of fairness that might be expected from government towards second home owners has gone out the window. The result of this practice will mean that anyone who does actually use a second home for their own purposes (and let's be honest, some of those purposes may well be honorable e.g. being near a sick relative, being near grown-up children), are going to have to sell up, probably at significant legal cost and financial loss if property prices have fallen since purchase.


But the government doesn't care what punishment it inflicts on people today. It would appear that having even moderate wealth is a crime punishable by extreme taxation.


  • Introduction of stamp duty (LBTT in Scotland)

Back in 2003, stamp duty was charged at the following rates in the UK:

Up to £60,000

0%

£60,001 - £250,000

1%

£250,001 - £500,000

3%

£500,001 +

4%

If those monetary values are corrected to today's values (to allow for inflation), the above table would look like this:

Up to £100,700

0%

£100,701 - £419,400

1%

£419,401 - £838,800

3%

£838, 801 +

4%

Today the following stamp duty rates apply in England and NI:

Up to £250,000

0%

£250,000 - £925,000

5%

£925,001 - £1,500,000

10%

£1,500,000 +

12%

The above two tables indicate quite clearly that anyone buying a property more than £250,000 has endured a massive hike in stamp duty rates. Once again, only the very poorest are being helped, and at great expense to the middle classes and above. It would seem that the middle classes can no longer dream of raising themselves up to a stunning property. That privilege is now reserved for only the extremely rich who can count their wealth in millions. What a depressing, small-minded country we live in.


In Scotland today, unsurprisingly, the situation is even worse for the middle classes than in England and NI, with the following LBTT rates applying:

Up to £145,000

0%

£145,001 - £250,000

2%

£250,001 - £325,000

5%

​£325,001 - £750,000

10%

£750,000 +

12%

Once again, Sturgeon chooses to hammer the middle classes. In England and NI, stamp duty at 10% does not begin until a property costs more than £925,000. In Scotland, the 10% charge begins at a property value of £325,000. An astonishing difference.


Aspiration is clearly seen as a sickness by Nicola Sturgeon, who thinks all Scots should be equal - equally poor that is.


What I find particularly galling about this tax is that the government do not seem to realise that the middle classes are simply not willing to pay this amount of tax EVEN if they can afford it. There comes a point with the middle classes who generally work and save hard to afford their quality of life, where they are not prepared to hand over this amount of money to the government. If only the government would lower these taxes they would find that far more middle class people would be prepared to move upwards. But currently they are simply staying in their current properties, unwilling to upgrade to a bigger property, because they cannot bear to hand over tens of thousands of their hard-earned pounds to an undeserving government. They would rather keep their money and spend it on themselves. If the government could lower this tax, they would probably find that the increase in the number of property transactions would make up for the loss of tax per property.


  • Introduction of second home stamp duty* plus subsequent increases [*stamp duty is known as Stamp Duty Land Tax (SDLT) in England and NI, and as Land and Buildings Transaction Tax (LBTT) in Scotland]


And now on to the matter of stamp duty on second homes. A matter that the media has done well to present as an evil purchase carried out by greedy people with too much money. I find that a very unfair representation. People should have the right to spend their money on whatever they please. Some people spend money on expensive cars or expensive holidays or expensive food, yet no one chastises them. I thought we lived in a free country where you were allowed to spend your money on whatever takes your fancy. After all, it's your money that you have earned and paid tax on, so what's the problem if people choose to spend it on a second home (which may well provide benefits to that person's quality of life e.g. allow them to visit family and friends). The real problem lies not with those that buy second homes but with those who are envious, many of whom appear to work for state and local government.


Anyway, a bit of history.


Up to April 2016, stamp duty was charged on second homes at the same rate as main residences, although the thresholds were greatly reduced such that the charge applied to the entire purchase price in most cases.

Then from April 2016, both in England, NI and Scotland, an additional 3% (of the purchase price) surcharge was levied on second home purchases, which still persists in England and NI to the present day.


However, in keeping with their ingrained hatred of anyone of moderate wealth, the SNP government in Scotland raised this surcharge to 4% up to 16 Dec 2022, and to 6% for the present day.


I can only surmise that the Scottish government is planning on killing off the second home industry and the tourism associated with it. Talk about killing the goose that laid the golden egg.


  • Reductions in Capital Gains Tax Annual Exempt Amount

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. For example, second homes, possessions worth more than £6,000, and shares are examples of taxable assets.


Currently you are allowed to make a gain of £12,300 before you are taxed. This is known as the Capital Gains Tax Annual Exempt Amount (CGT AEA). Greater gains are taxed at a rate dependent on whether you are a lower or higher rate taxpayer.


  • If you are a lower rate tax payer, you pay at a rate of 10% on the extra gain.

  • If you are a higher rate tax payer you pay at a rate of 20% (and 28% on residential property) on the extra gain.


However, from April 2023, the AEA will be reduced to £6,000 for individuals.


And from April 2024, the AEA will be permanently fixed at £3,000 for individuals.


In other words, the CG taxation is getting to the point where virtually no gain of any significance is free from tax, with yet again, higher rates of taxation loaded on to higher earners, many of whom may well still be struggling with the cost of living, despite their above average income.


  • Reduction in tax thresholds on share dividends

Let's be realistic here. Shares are no longer the preserve of the rich. Those days are long gone. They began to disappear in the 1980s when Margaret Thatcher encouraged ordinary members of the public to purchase shares in privatised public companies such as British Gas, British Telecom, British Airways, Rolls-Royce, etc.


The Dividend Threshold is the amount a person can make in share dividends before they are taxed on it.

  • Prior to April 2018, the allowance was £5,000 per annum

  • Today, it sits at £2,000 per annum

  • From 6 April 2023, the allowance will be reduced to £1000

  • From 6 April 2024, the allowance will be reduced to £500 per annum

In other words, it will soon be impossible to earn any significant amount from share dividends without being taxed on it.


And not surprisingly, the tax rate you pay depends on your total income.

  • Basic rate tax payers will pay 8.75%

  • Higher rate tax payers will pay 33.75%

  • Additional rate tax payers will pay 39.35%

Which all begs the question, is there any point in striving to earn a salary that takes you into the higher rate tax band since the penalty for doing so is so significant? And is there any point in holding shares?


  • Summary

So there you have it. I hope I have managed to demonstrate how there has been a continual ONSLAUGHT on the middle classes over the past 20 years. One that shows no sign of abating.


What is deeply troubling in all of this, is that it indicates that the financial health of this country (UK and especially Scotland) is perilous. More and more subsidies being taken from the middle classes to support the working and non-working poor. We are close to a tipping point where there may well be a disastrous turn of events in terms of civil stability in this country. The government cannot continue to expect those that work the hardest to subsidise those that don't, to the point where there is no benefit in doing so. Therein lies the road to ruin and potential anarchy.


I am reminded of the killing of the goose that laid the golden egg. When you tax people too heavily, they change their behaviour so that they no longer have to pay that tax. I fear we are past that tipping point, particularly in Scotland. Just at a time when governments should be encouraging consumer spending and turbo-charging the economy, they appear to be hell-bent on killing many aspects of it. You cannot hold people to ransom and expect them to comply.


What a desperate, grasping governmental system we have. I make no apology for calling them gangsters. The system of taxation in this country is nothing short of extortion. What a miserable country the UK, and especially Scotland has become. Countries where aspiration and wealth is frowned upon and punishment awaits for anyone daring to attempt to improve their livelihoods.


Perhaps Liz Truss (and her Growth Plan) had the right idea after all.


You may scoff, but at least she knew there was a looming disaster.












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