Taxes on wealth and spending

Andrew Hood contributed an article to this bulletin titled 'The changing generosity of private pension provision and its differential effects across generations'

This document provides an overview of the UK tax system, describing how each of the main taxes works and setting their current state in a historical context.

From an economic perspective, imposing a credibly one-off net wealth levy in times of crisis as a tool to ward off a national emergency appears to be advantageous as, in an ideal world, this would not distort market players’ allocation decisions. However, in practice, charging such a levy may give rise to distortions and unwanted effects on the real economy.

By the end of the parliament, tax receipts are due to return to their pre-recession share of national income. However, compared with 2007/08, policy choices mean the taxman looks set to raise more from VAT and less from other indirect taxes; about the same amount from personal income taxes, though with more of that coming from the highest earners; less from the main property taxes; and substantially less from corporation tax. HM Treasury will be more reliant on small taxes, including five entirely new ones. Whether these changes have been part of a clear and coherent overarching strategy is, to put it kindly, unclear.

A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealised capital gains. Most data and statistics on assets and wealth are reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the Survey of Consumer Finances (SCF) from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and distribution of after-tax net worth. The results of our analysis suggest that, relative to published statistics on pre-tax net worth, the distribution of after-tax wealth is slightly less concentrated in the early years of our sample period, but the effectiveness of the income tax system in reducing wealth inequality has decreased during the last decade. We find the reduction in the long-term capital gains rate is the primary reason for the muted effectiveness of the current income tax system in reducing wealth inequality.

This is a response by IFS researchers to the Work and Pensions Committee's intergenerational fairness inquiry.

In this report we describe the forms in which household wealth is held, we set out the effects of the current UK tax system on the incentive to save in different assets, we consider the implications of a number of reforms due to be introduced or currently under consideration, and we analyse the effect of two non-tax features – employer matching of pension contributions and fund charges – on the attractiveness of investing in different assets.

This Thinkpiece on pensions taxation was published by The Chartered Insurance Institute on 21 October 2015.

The authors provide new empirical evidence on the importance of defined contribution pension wealth in England, and the nature of annuitization decisions taken by older adults who retire with such sources of wealth.

The last 50 years has seen a dramatic increase in pensioner incomes and decline in pensioner poverty rates. But what are the prospects for the future? This Round-Up, published by the Joseph Rowntree Foundation, draws together the key findings from a programme of work led by the IFS which looked at the prospects for future pensioner living standards.