NI rise and what it means for the FIRE movement

I am of course talking about Boris Johnson’s new Health and Social Care Levy – which is not just a tax but a gateway tax!

It turns out that the long foreseen problems of increasing costs of an ageing population have come to the top of the PM’s to do list and the fairest way to solve this problem is to make the people who are least likely to benefit pay for the cost. The 1.25% tax rise on personal and 1.25% tax rise on company NI contributions is paid for by those in work. At least the triple lock was rescinded – but there is an intergenerational divide and if you are 40 under – you are on the losing side.

Of all the options open to the government; raising income tax, raising NI rates, making pensioners pay NI, raising VAT, increasing corporation tax, raising CGT, introducing a LVT or taxing property wealth (or any wealth for that matter), raising National Insurance has to be distinctly, calculatedly and almost callously mean-spirited.

I’ll not go through the numbers on who will pay what and how much it’ll cost or raise – but let’s just say that if you are on the side of work – as in, you work for your money – you’ll pay more. If on the other hand you don’t work for your money and your money works for you – you’ve nothing to worry about.

It goes against the BS of how capitalism is best for economic growth. Here, the tax is on business activity and not paid for by the holders of capital. It’s almost as if capitalism is about making the rich richer and the workers work harder…

FIRE Reflections

On the one hand, on principle, I don’t agree with what was done. But on the other, you’ve got to play the hand that you are dealt. This is actually not too bad for me personally. I’ve earned most of my lifetime income already, so the tax isn’t a big hit. Also, as I’m sure you’ve already worked out – you can have a million pounds in ISAs, savings & Pensions, live in a million pound house and pay no tax or NI at all*, whilst someone on the (just about) living wage will not only pay more tax than you but will now pay more tax. Not to mention how being on the side of wealth has been a more comfortable ride than being on the side of work over the last few (or any number) of years. If you save your money, invest it wisely and sit back – you can relax knowing that you’ll be fine without breaking a sweat. Isn’t that what Financial Independence is all about?

*There is council tax, but when you million pound house is increasing in value by 10% a year – you don’t have to worry about which Band you are in.

Exit Strategy

If I was 10 years younger, I’d be drawing up a list of places to emigrate to. The current government had a chance to tax the wealthy but didn’t do it. I’m grateful and saddened at the same time. I’m almost 40 with kids, I’m FI already – work is optional – this doesn’t affect me as much as others. It will be interesting to know if you can salary sacrifice yourself out of this tax rise – that would be my solution to this taxing problem. The tax increase on dividends is also a concern but you’d be probably best to move all of your money away from companies that pay dividends anyway – if a company can’t think of a better way to invest its money than to pay it back to shareholders, it’ll probably go extinct.

But it’s shocking that they’ve done this and will get away with it because pensioners vote and the liberal vote is split between Labour, the LibDems and the Greens, also the next election is years from now.

This new tax rise won’t be the last and it’ll increase and expand – but be under no misunderstanding, the beneficiaries will not be the ones paying for it.

Thanks, GFF.

13 Comments

  1. The beneficiaries will be people hired to be pen-pushers in the NHS.

    It’s a scandalously bad proposal. And will doubtless be rammed through without meaningful opposition.

    Surely even Sir Kneel Starmer, rich lawyer and pseudo-prole, can take long term advantage? Or perhaps he has no long term.

    Liked by 1 person

    1. Given that the government has a permanent deficit, and that growing costs of the NHS and social care have been known about for decades, why now and why in this manner?
      On how the NHS operates, I don’t know as I have no knowledge.

      Like

  2. I’ve just accepted this new increase in tax and not let it rile me, as there’s no point – the decision has been made. I might be slightly protected with my salary sacrifice at work, not really looked into it.

    I see today that Kier Starmer’s counter is to tax the income of ‘landlords and those who buy and sell large quantities of financial assets, stocks shares’, which is likely to squeeze those in the middle even more.

    The black hole that is social care does need to be funded but no one has the plan on how to achieve this.

    Anyway, good to see you back GFF, have missed your posts.

    Liked by 1 person

  3. Using Salary Sacrifice to put 56% of my salary into my pension means I shouldn’t really be impacted. My employer shares half the saved employer’s with me so at a rough guesstimate I think I’ll almost completely escape the “tax” rise. However, I have a much higher taxes to worry about which are the LTA and IHT. Also will my employer put off further wage increase due to the increases in their NI bill ?

    I’d have no issue paying the higher tax if I thought it would be well spent.

    Liked by 1 person

      1. Yes, the LTA is one of the looming challenges, along with IHT. I could mitigate things by dropping down to a level just to ensure my employer makes the maximum matching contributions. However, that would thrust me into a higher tax bracket immediately my household would lose Child Benefit.

        I could reduce my hours or entirely jump ship. Those options are becoming more attractive.

        Like

      2. My eldest has just started school. So I am considering myself as grounded in our local area for the next 15-20 years. Which is fine but does give me the chills when I think of how I’ll be buffeted by subsequent rules on tax for the sake of family stability
        Ideally I will then be able to move somewhere as a tax fugitive pensioner when the kids are as educated as they can be – of course the lay of the land regarding overseas pensions/ISAs… are another thing altogether

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  4. Congratulations in getting your eldest through to the start of school. My son is in year 3 so we’ve now started getting homework . He also appears to suffer from daily bouts of amnesia as he can never remember what he did each day at school.

    Sometimes you just have to accept the things you cannot change and attempt to plan accordingly. Frozen allowances are going to negatively impact many of us, especially with inflation running hot.

    Sometimes I do wish I could be a bit more “normal” and concern myself with more trivial matters.

    Liked by 1 person

    1. We’ll, in Scotland the start of the 41% tax rate was frozen a few years ago and sits around £43k – meaning an extra almost £2k in income tax if you go down that route.
      It makes sense to me anyway to avoid this as much as possible and I at least have the ability to do it with our own financial arrangements.
      Given how the tax burden falls, it’s not entirely fair in my view.

      Like

  5. Good article which articulates the problem well and weenie’s comment is also sensible. Fairness has nothing to do with it. Focus groups for elderly – most likely to vote and also crucial to conservatives re-election, which is all that matters was that the tax changes were very well received. Apparently the other most pressing point from these focus groups is ensuring that migrants are turned back forcibly on their boats. Which is also an issue but somewhat missing the wider point. Correct if you are post grad with a student loan paying circa 50% tax on any income rise from your employer will hurt and what is the point. Particularly given house prices. It’s called indenture and young people are totally screwed – not withstanding absolute standards of living increases.
    I’ve around £5m net wealth. If I were to retire now, which a bit of jigging things around, I could put around £50k of income minimum with zero tax and any additional tax would be at a 10% rate. I suspect though tax rises are coming for the wealth in the future. But I’ve paid a couple of million in tax to get there. My basic plan is potentially to emigrate if needed to a lower cost tax location and realise unshielded assets with latent CGT there. Easier said than done. There are not many places to go to though if you are a young higher earner beyond the middle east and then it’s worth doing that when you are young. Most places just don’t offer the income earning potential.
    It’s clearly horrific that wealthy pensioners don’t have to sell their house or assets to pay for care – but fairness has nothing to do with it.
    The average public sector worker post their 1% pay increase, inflation of circa 3 – 4% and NI of 1.25% is going to be circa 3.25-4% worse off next year. That’s what I call levelling up!!!!

    Like

    1. It struck me yesterday when I read your comment that expecting an 4% after inflation return on equities and a 4% after inflation paycut over time leads to massive intergenerational inequality in just a few years.
      That’s what I’ve tried to avoid (as best as possible) and I’ve done alright.
      Then again, the slow and steady way to FI is a lot easier if you have strong tailwinds in terms of property, pensions and professional development. Unfortunately for many the situation is dire – hence how the £20 a week cut to UC is being seen as an inhumane deprivation.

      Well done on £5m – I can only imagine that you either started life with £10m or have had to risk and work for it.

      Like

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