VAT reduction of 2.5 percentage points

[JohnD]

dividends in Pension schemes are taxed at 10% not 40%

The All-Share Yield is about 3% at the moment (it is usually about 2.5% but prices have dropped and dividends haven't so is currently a bit higher). Most pension schemes are not heavily invested in high-yielders. If you have a SIPP and chose to invest in Royal Bank of Scotland and other similar companies, tax on the high yield is less of a problem to you than the 90% drop in capital value as the share price has plummeted (and they have stopped paying cash dividends now anyway).

The dividend yield is far less than the capital growth, and the tax credit is only a tenth of that yield, so is trivial compared to the capital growth and charges.

Pension investments in Gilts, Corporate Bonds, Cash deposits etc are not taxed.

40% tax is a Personal tax rate, but your pension scheme receives your contributions free of income tax (basic rate tax is rebated to the scheme, and the additional 20% or so you get back after your tax return).

 

[2scoops0406]

I'm sorry, I didn't know the tax was 10%. But even taking those figures, of 3% div and 10% tax, over 40 years you'd still be 12% better off*. Not inconsiderable.



* in terms of payments made at the beginning of the 40 year term.

 

[JohnD]

yes, 0.3 p.a. does make a faint difference. But compare this to the 1.5% or 1% or 0.5% or 2% p.a. that companies might snatch off you in charges and expenses, or the 4% or 8% or 12% compound that it might grow, and it disappears in the fluctuations. For example one of my pension funds has dropped in value by 32% in the last twelve months, but in 2003/4/5/6 it grew by 16.3%, 13.6%, 37.3% and 12.5%. I wouldn't notice the effects of the dividend tax credit in that.

You can save more than that by choosing a low-cost pension provider instead of throwing your money at a high charger.

The 0.3% p.a. only applies to Equity investments (shares) and a typical pension fund might have 50% shares and the rest in fixed interest, gilts or whatever, where the dividend tax credit does not apply... so your fund might typically only be 0.15% p.a. worse off than if the rules had not changed ten years ago. A trivial amount, really, and not worth all the fuss that the Con servatives like to stir up. Nothing compared to the Thatcher's doubling of VAT, for example.

 

[Softus]

Am I the only sceptic with a calculator?

No, but you're one of those who can't use one.

Your argument that a 2.5% reduction is entirely offset by an increase in fuel duty is fundamentally flawed.

Take this situation. Haulage firm who can claim VAT back.

I'm already bored with that example. Why do you, and so many others, think that there was supposed to be a benefit to businesses from lowering VAT?

FFS, it's an incentive for the public to spend more money at retailers.

Not all products will suffer an increase in retail price costs that come from a fuel price increase. My monthly broadband payment, to name but one example, will decrease by 2.13%. So will my phone bill. And my mobile phone bill.

If you don't want 2.13% of your monthly spend on those utilities, then send it to me - you won't hear any complaints. Or give it to a recognised charity. Anything, other than whinging about it, would yield some benefit to somebody.

 

[Steve]

For those sceptical that lower VAT will not be passed onto consumers, the company I work for is lowering prices in line, all 4500+ in my store alone. Thanks Darling.

I am, though, sceptical, that the bigger players in the grocery industry will keep some prices higher, with loud adverts on TV advertising "we're passing on the saving early" etc - Yes, but its on about 4 products!!!! And they were already on offer!!!!