Is my effective marginal tax rate closer to 85%?

[Purple]

I'm not saying don't amass wealth and don't provide, I'm saying there are better ways of doing it than just in a will

I know a well off couple, one in their late 80's and the other in their mid 90's. They have lived small frugal lives and have never travelled or really enjoyed any of their money. They have never used it to enrich their lives or the lived of their children in any material or non material way. It's like having a workshop full of tools and never using them to make anything.

They have 4 children. Two of them are now retired and the other two are passed the stage in their life where receiving a large amount of money would be transformative. The children will inherit a large amount of money, in excess of a half a million each, long after they actually need it. It strikes me as such a waste. It would have been far better if they had given their children far less money when they were buying a home or when they had young children etc. or they could have just spent it on themselves but to do nothing with it...

 

[Hmm5673]

Another disincentive to work as if i dont have enough already

I mean, if you don't need the money and don’t want to work you can just… not work? No-one’s forcing you.

Personally I think it’s fairly ridiculous that people who are just _given_ money pay far less tax on it (CAT is only 33%, and there are massive exemptions) than those of us who get our money by working.

 

[TomEdison]

If your sole objective is providing for your dependants then, obviously, give them everything immediately. But most people have more than one objective. They might wish to retain assets so that they can call on them themselves, if required, or give them to family or dependants to meet their needs, if required.

Essentially, the argument here is whether someone should enjoy spending/distributing their money more than they enjoy keeping it. But once you frame the argument in those terms you realise its irrelevant. How you or I think someone ought to enjoy their money is neither here nor there; all that matters in terms of financial planning is their preference. If they get more enjoyment or utility or comfort or security or whatever from having a large amount of money available to them than they do from spending that money or giving it way, then that is what their financial planning should be directed towards.

 

[Itchy]

I disagree, if I can more easily earn enough to live on or have assets that generate enough income to live on wh6 should I work to generate extra income all of which will be raced at 52% (or in effect a higher rate if you follow my line 0f thinking around inheritance tax)

It’s a disincentive to work from a financial perspective

I notice you have avoided my question! How much of the gross estate will be relieved of the inheritance tax that you have an issue with.

If the marginal tax rate on income is a disincentive to work, then the inheritance tax is irrelevant from an incentives point of view (you are not going to have that income to give away).
If you do earn the income - its not going to have any meaningful effect (unless your gross pool is small - which yours is not) on the EFFECTIVE IHT rate.

 

[patfert1]

"That dying with loads of money left is not a good sign of financial planning, what's the point of been the rich sucker in the grave yard"

True, but we also have an evolutionary instinct to make life better for our kids, even at our own expense.

Property has increased in value over the last 40 years at twice the rate of inflation.

If you bought 40 years ago. But not over the last 20 years. If you bought at the height of the market in 2006 you might now find yourself selling for what you bought it for - especially when your buying, selling and maintenance costs are factored in - and that would be a significant capital loss if inflation could be factored in (39% in last 20 years). Of course this is not the full equation - you may have 20 years of rental income, or if it was your PPS you saved on rental income for that period, etc, etc. My point is that this can be spun many ways.

 

[TomEdison]

Well, we could restore indexation relief, but tax the real gain at the taxpayer's marginal rate of income tax, rather than at a special CGT rate. (If you think about it, there is no particular reason for a special rate of tax for gains, and many countries do just add chargeable gains to income and levy income tax on the lot.)

Would that be a better system? Obviously whether it works out better or worse in an individual case depends on inflation experience during the period when the asset is held, and on the particilar taxpayer's marginal rate. But as a system or scheme, does it make more sense, or seem fairer, than the current arrangement?

 

[Purple]

True, but we also have an evolutionary instinct to make life better for our kids, even at our own expense.

We also have an evolutionary instinct to create large co-dependent societal groups... otherwise we wouldn't create large co-dependent societal groups. Then there's the evolutionary instinct to be nice to each other and have integrity and have a sense of natural justice... otherwise we wouldn't do those things either.

If you bought 40 years ago. But not over the last 20 years.

If you bought in 2012-2016 you'd be quids in.

If you bought at the height of the market in 2006 you might be find yourself selling for what you bought it for - especially when your buying, selling and maintenance costs are factored in - and that would be a significant capital loss if inflation could be factored in (39% in last 20 years). Of course this is not the full equation - you may have 20 years of rental income, or if it was your PPS you saved on rental income for that period, etc.

Yep, if you bought in 2006 then you are unlikely to have that lump of unearned wealth.

 

[bish123]

System is build to encourage spending in your life time for money to exchange hands and provide employement. Wealth saved and passed on to next generation stays out of circulation. It might be good for individual family but not so good for the society.

 

[patfert1]

We also have an evolutionary instinct to create large co-dependent societal groups... otherwise we wouldn't create large co-dependent societal groups. Then there's the evolutionary instinct to be nice to each other and have integrity and have a sense of natural justice... otherwise we wouldn't do those things either.

Absolutely, it's a complex societal equation and you can see many takes on this from strongly socialist economies to the "small government" believers. But I bet most people would rather their money goes to their children than the neighbour's children or the local town community.

 

[patfert1]

Wealth saved and passed on to next generation stays out of circulation.

I often hear this argument and don't believe it. If I put my savings in the bank or invest it in AIB stocks, it is not out of circulation, it is very much in circulation. The only exception being if I put it under the mattress.

 

[Cameo]

It might be good for individual family but not so good for the societ

Does it depend? If high inheritance taxes discourage entrepreneurs society might be worse off?

Agree on inherited property though

 

[Purple]

Does it depend? If high inheritance taxes discourage entrepreneurs society might be worse off?

Nobody considers inheritance when seeking to build the capital value of a business. I make a distinction between someone who starts a business to generate an income and someone who starts a business with the aim of creating significant capital value. The latter, to me, is an entrepreneur.

There are significant tax reliefs for the owner of a trading company who is selling their shares and there are eve more generous tax breaks for people transferring the ownership of a business to their children.

 

[Itchy]

There are significant tax reliefs for the owner of a trading company

That's the key point - with the very large exemptions, the headline rates (i.e. the marginal) need to remain high in order to ensure that the actual tax collected (i.e. the effective tax rate) is consistent. Same with income tax, the very high entry point to paying income tax requires a high marginal rate, with the obvious disadvantage of discouraging higher value labour beyond a certain point but balanced with trying to encourage labour at the lower end of the value chain.

 

[Purple]

Same with income tax, the very high entry point to paying income tax requires a high marginal rate, with the obvious disadvantage of discouraging higher value labour beyond a certain point but balanced with trying to encourage labour at the lower end of the value chain.

Yep, despite the absurd rhetoric from the far left Parties about FG and FF being Neo-Liberal they are in fact well left of centre and we are the closest thing to a Socialist Utopia in Europe (all paid for by taxes on US Multinationals and our status as a quasi-tax haven).
With very high social transfers we have to have a high minimum wage to get people to bother to work and we have to tax the bejasus out of those who have a high income. It would be funny if it wasn't so laughable.

 

[Villaines]

The children will inherit a large amount of money, in excess of a half a million each, long after they actually need it. It strikes me as such a waste. It would have been far better if they had given their children far less money when they were buying a home or when they had young children etc. or they could have just spent it on themselves but to do nothing with it...

Isn't there a Dave Ramsey quote about how one of the things to teach children about money is "how to enjoy it"!

 

[Cervelo]

How you or I think someone ought to enjoy their money is neither here nor there; all that matters in terms of financial planning is their preference

Couldn't agree with you more but it doesn't stop us having a shoulda, woulda, coulda conversation as it's all food for thought

 

[getting_on]

I want a small job done and the man who'll do it reckons that he'd like to net €39 for doing it.

Because he's a higher rate tax payer, he'll need to charge me €81.3 plus 23%, that is €100 in total.

As I am also a higher rate taxpayer who also has to collect VAT for the government @23%, I'll have to charge my customers €256
in order to clear €100.

At the end of it, I'll have no money but will have had my job done, the guy who did it will have received €39 and the government will have received
€217. You'd think that in a fair system it would be the other way around.

Everyone needs to charge 2.5 times what the fellow they're paying wants to earn

It's extraordinary. I know we get a lot back in services but I can't wrap my head around the scale of it.

 

[Protocol]

Because he's a higher rate tax payer, he'll need to charge me €81.3 plus 23%, that is €100 in total.

As I am also a higher rate taxpayer who also has to collect VAT for the government @23%, I'll have to charge my customers €256
in order to clear €100.

Cost of input to you is €81.30.
You add €100 gross margin.
Your selling price excluding VAT = 181.30
Retail price = 181.30 * 1.23 = 223

 

[getting_on]

Cost of input to you is €81.30.
You add €100 gross margin.
Your selling price excluding VAT = 181.30
Retail price = 181.30 * 1.23 = 223

I suppose I am thinking of my situation.
I make a living by providing a service, I charge for my time plus VAT, I claim hardly anything back in VAT, maybe €60 a quarter.
So I was thinking of my situation where I'm charging for my time and the guy I am getting is is charging for his.

 

[Purple]

At the end of it, I'll have no money but will have had my job done, the guy who did it will have received €39 and the government will have received
€217. You'd think that in a fair system it would be the other way around.

Everyone needs to charge 2.5 times what the fellow they're paying wants to earn

It's extraordinary. I know we get a lot back in services but I can't wrap my head around the scale of it.

In the US you deduct what you have paid in Sales Taxes and things like VRT, Property Tax, etc from you income before you pay income tax. You can also deduct all of your mortgage interest, In other words there is far less double taxation. When we hear people claiming that income tax rates in much of the US are close to rates here that fact is never mentioned.