New ‘age tax’ boosts tax-free appeal of ISAs
PUBLISHED: 13:59 16 November 2018 | UPDATED: 14:00 16 November 2018
Like Henry VIII, modern-day politicians continually invent new ways of taxing their citizens.
Quiz question: what do beards, windows and hats have in common? Give up? They’re all items that were taxed by various English monarchs and politicians before Robert Peel infamously levied a tax on incomes.
During the often tempestuous Tudor reign and a dozen years before his death, Henry VIII, who by then had blown most of the money bequeathed him by his father, introduced a beard tax in a desperate attempt to raise funds. England’s most egotistical monarch (and he has had plenty of competition for that moniker) decreed that the longer the beard, the more the wearer must pay, cleverly making facial hair a symbol of social status.
Henry’s daughter, Elizabeth I, would revive the levy, taxing men who sported more than two weeks’ facial hair growth, although her attempts to boost exchequer income were undermined by the indifference of officials charged with collecting the tax.
Almost a century after Elizabeth’s demise, in 1696 a window tax was introduced. If you thought the Poll Tax was unpopular, the window tax was universally hated. It’s the reason why we still see so much evidence of attempts to avoid it – apertures bricked up to prevent the imposition of what was supposed to be a progressive tax slapped on people with ten or more windows in their home, though in truth, every householder or tenant was liable for at least a basic version of the tax.
Despite its unpopularity, the window tax remained on the statute book 1851, more than 150 years after it was introduced.
England’s tax on hats was around for a much shorter period (though it still remained in force for 27 years), while the consequences of evading payment were serious.
Between 1784-1811, all hats had to have a ‘revenue stamp’ affixed to their internal lining. Fines were issued to milliners or hat wearers who failed to pay the tax, while anyone forging the revenue stamp could be sentenced to death.
Which brings us on to income tax.
Income tax was first levied as a temporary measure in 1798, when William Pitt the Younger, keen to finance preparations for the Napoleonic Wars, introduced a rate of 2d in the pound on incomes over £60 (about 0.8%), rising to two shillings in the pound (10%) on incomes over £200.
In a rare example of politicians keeping their promises, income tax was repealed (in 1815) after Napoleon was defeated, but following Peel’s election in 1841, it was quickly reintroduced and levied initially on those with incomes over £150. However, the income tax genie was out of the magic bottle and within less than a century, more than 10 million people in the UK became liable for income tax.
The point of this brief meander through the state’s insatiable appetite for more money, is to highlight the variety of ways in which citizens can be relieved of their hard-earned.
Indeed, it was with great dismay that I read this week of a new levy with which the over-40s could soon be hit. This “tax on age” as it’s been dubbed would result in a compulsory premium deducted from the earnings of the middle aged and over-65s to fund the cost of their care in later life.
The proposed age tax is based upon a similar system operating in Germany under which all workers over 40 pay 2.5% of their salaries into a fund earmarked for social care.
Given the number of taxes for which we’re already liable, it’s surprising that it’s taken so long for some bright spark at the Treasury to voice the idea of taxing age.
When it comes to raising money, governments and monarchs of every political hue have always regarded their citizens as an easy touch, which is why, whenever an opportunity arises to reduce or legitimately avoid tax, it should be grasped with both hands and exploited to the maximum.
More than 10 million ISAs were opened by taxpayers last year – and with good reason. Since they were introduced in 1999, ISAs have proved enormously popular.
Nevertheless, the annual ISA allowance (currently £20,000) applies only to the tax year in which it is made. Should you fail to use all of your allowance, it will be lost because it cannot rolled over to the following year.
You may invest either with a lump sum or by making regular (usually monthly) contributions throughout the year; all income and returns generated through your ISA is tax-free. Considering the Treasury’s insatiable appetite, failing to take advantage of this tax-efficient pearl is akin to building a house in the eighteenth century house and deliberately fitting it with more than ten windows.
For further details: https://www.moneymapp.com/isa