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“Intergenerational honesty is a major problem for post-Covid Britain”

Paul Falvey is a tax partner at accountancy and business consultancy firm BDO

Paul Falvey is a tax partner at accountancy and business consultancy firm BDO

Paul Falvey is a tax partner at accountancy and business consultancy firm BDO.

Now that we are entering a time when the lock may soon be relieved, it is important to consider the groups in society most affected by the long-term impact of Covid-19.

One group will certainly be the younger generations.

We live in a time when families of four generations are quite common, and purely from a financial perspective, many first and second generations can be protected from the greater economic impact of Covid-19 if they already own real estate or have good retirement provision.

However, often third and fourth generations do not have such security and are eager to know what the government can do to give the younger generations a greater share in society once we emerge.

When the UK starts restoring Covid-19, the government has three broad options for generating much needed income: borrow more, spend less, or raise more taxes.

Additional loans are likely to have the most impact on younger generations, as they will be paid off in the long run while hunger for a new austerity period is low.

If the government decides to increase the tax, careful consideration should be given to where it should fall. It would be sensible for me to ensure that the younger generations do not carry the burden excessively.

Drawing up a fair and effective strategy will not be easy, but it is an important topic to be considered and discussed.

There are four main areas that are eligible for change: income tax, pensions, stamp duty, land tax and inheritance tax.

Income tax

In the current state of affairs, the level of income tax is determined solely on the basis of salary rather than age.

However, at this unprecedented time, the government could consider lowering the income tax for workers under a certain age, provided that the age discrimination laws are complied with. A 30-year-old single person who lives in the Southeast and earns £ 60,000, for example, may have trouble buying a home.

The government could consider lowering income taxes for younger generations to help get them up the housing ladder

The government could consider lowering income taxes for younger generations to help get them up the housing ladder

The government could consider lowering income taxes for younger generations to help get them up the housing ladder

However, if their full salary is taxed at the lower tax rate of 20 percent, it can positively impact their purchasing power. It would be carefully calibrated to ensure that the relatively small number of high-earning young people would not benefit disproportionately.

Aside from real estate, younger people with a more disposable income could also spend more, which would give the economy a big lift at a time of bad need.

Pensions

It is likely that once we get out of the current Covid-19 restrictions, the chancellor will have to increase revenues and reduce the tax credit for retirement contributions.

This would make it even less attractive for young people to save for retirement rather than just for a holiday, a new car, etc. Therefore, I think the government will have to take new retirement initiatives to encourage this type of saving.

Older readers will remember a time when the amount you could contribute to a pension depended on your age – the older you were, the more you could contribute. Even today, in many private retirement plans, an employer will adjust pension contributions for certain ages at a higher rate.

“The government will have to offer new pension initiatives to save this kind of encouraging ‘

Given that the sooner you invest, the more your retirement can grow, this seems to be the wrong way.

I believe that the government should look again at age differentiation, but this time aimed at giving higher tax reduction rates on contributions from younger taxpayers.

Stamp tax ground tax

As I have already noted, the younger generations are struggling to get onto the property ladder, a phenomenon likely to continue unless changes are made.

While lowering income tax for younger generations is an option, charging lower land tax rates for older generations to encourage contraction could be an effective strategy.

There is a British issue of retirees staying in large single-family homes, while their children are raising children in less spacious accommodation. Currently, many elderly people do not see the value in moving to a smaller property because of the SDLT they will have to pay when purchasing.

'Charging lower tax rates on land tax (SDLT) for older generations to encourage shrinkage could prove to be an effective strategy.'

'Charging lower tax rates on land tax (SDLT) for older generations to encourage shrinkage could prove to be an effective strategy.'

‘Charging lower tax rates on land tax (SDLT) for older generations to encourage shrinkage could prove to be an effective strategy.’

Without this, they could be more encouraged to move, which could potentially free up cash and free up the property for those in need of the space – a ‘bedroom tax credit’ if you want.

This can help make more efficient use of the national housing stock, while retirees can enjoy their retirement by spending money instead of having one big asset.

Inheritance tax

Finally, inheritance tax (IHT) is always a subject eligible for tax reform. However, after countless reviews and reports, we haven’t seen any significant changes for many years.

Many parents would like to pass on some of their assets to their children, but are concerned about how this might work and the associated risks. However, since the economic impact of Covid-19 is likely to be significant, many parents are likely to see their children struggling and feel a greater need to provide financial support.

One way of encouraging the transfer of wealth could be to encourage older generations to pass on their wealth.

The current system mainly penalizes families who cannot pass on their wealth, the value of their family home.

If it had been made easier to pass on this wealth, for example by making it easier for older generations to shrink, if money were to be released there would be an increase in consumer spending and a much needed boost for the real estate market. This will enable a process of money going from passive to active people and fueling the economy.

However, it would be vital for those wishing to transfer their wealth to do so wisely – some careful consideration and consideration is often essential to reduce the risk of wasting family wealth.

The immediate priority in these difficult times is to ensure that individuals and companies continue to receive the financial support they need. But as we look to the future, it must be the government’s priority to ensure that our third and fourth generations retain a share of society and are not left behind even further as a result of the Covid-19 outbreak.

Paul Falvey is a tax partner at accountancy and business consultancy firm BDO

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