Sometimes it’s the lesser stories of the week which make you think the most.
It’s been a common misconception now for many years that due to an ageing population younger people will pick up far more of the cost of caring for the elderly. Few have challenged that.
The mantra that the young will pay for the old as the working population shrinks has been repeated so often we’ve taken it as a given.
There is some truth in this yet our story this week on the latest HMRC demographic analysis of who is submitting a tax return should cause people to at least question this ‘wisdom’.
Overall, the analysis points to more and more people of pension age (65) and above having to submit tax returns, 1.8m according to the latest HMRC data.
That’s a weighty 16% of the 10.8m people who submitted tax returns in the HMRC in the 2020/21 tax year.
What’s more they outnumber younger people considerably. Only 2.7% of 16-24 year-olds submitted a tax return in the same year, for example.
So why is this important? Well, as all Financial Planners and accountants know, it tends to be those with the most complex tax affairs who are required to submit annual tax returns. In most cases these are the better off, self employed or higher rate taxpayers or, to put it another way, typical clients for Financial Planners.
These taxpayers get a tax return because the HMRC wants them to pay more tax, or in HMRC terms, pay the tax that should be due.
Now to add context, it’s true to say that those in their higher earning years, 35-54 do submit the bulk of the tax returns, over 4.9m in fact.
Even so, 2.2m people coming up to pre-retirement or semi-retirement ages between 55 and 64 also submit tax returns.
Adding them together with the 65+ population filing returns and over 4m people aged 55 and over are now required to fill in a tax return, that’s well over a third of everyone who fills in a tax return. Many of these will be hit with additional tax bills. Some of these bills could have been avoided with better tax planning, of course.
The reason why more older people are getting tax returns is the fact is that most of the wealth in the UK is in the hands of older people and the government is becoming keener to get is hands on a share of their wealth through the tax system. This direction of travel is likely to continue.
So ironically, it may turn out that the people paying the most tax to fund the NHS and care services in later life will actually be older people whose tax bills will rise inexorably. Many of these will also be ‘working pensioners’ who will also naturally pay more tax.
In contrast, younger people on minimum wage jobs and repaying student loans may well find their tax burden is less. So the view the young will pay for the old is perhaps far too simplistic and ignores what’s really happening.
While these bigger tax bills are bad news for older people, they could be good news for Financial Planners. I would suggest that the bulk of the 10.8m people who complete tax returns each year should at least consider seeing a Financial Planner to get some much-needed tax advice.
If that isn’t a business opportunity I don’t know what is.
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Kevin O’Donnell is editor of Financial Planning Today and has worked in journalism for over three decades.
