Sometimes it’s the little things of the week that get you thinking the most.
This week’s article on the number of seniors filing tax returns put me on pause.
It has been a common misconception for many years that an aging population means that younger generations will pay far more to care for the elderly. Few have tried it.
We have taken it for granted as the slogan of young people paying the elderly has been repeated as the working population dwindles.
There’s some truth to this, but our story this week about HMRC’s latest demographic analysis will get people at least questioning this “wisdom” about who’s filing their tax returns. It should hold you.
Overall, the analysis shows that, according to the latest HMRC data, more and more people over pension age (65) are having to file tax returns.
This represents 16% of the 10.8 million people who filed tax returns with HMRC in the 2020/21 tax year.
Besides, they are way ahead of the younger ones. For example, only 2.7% of those aged 16-24 filed a tax return in the same year.
So why is this important? Well, as all financial planners and accountants know, the need to file annual tax returns tends to be the most complex tax affair. In most cases, these are wealthy self-employed or high-tax taxpayers, or to put it another way, typical clients of financial planners.
These taxpayers receive their tax returns because HMRC wants them to pay more taxes or, in HMRC terminology, they want to pay the taxes they owe.
To add some context here, it’s true that high-income people between the ages of 35 and 54 file the majority of the returns, actually over 4.9 million.
Yet, 2.2 million people reaching pre-retirement or semi-retirement age between 55 and 64 also file tax returns.
With more than 65 residents filing returns and more than 4 million people over the age of 55 required to complete tax returns, this adds up to 3% of all people filling out tax returns. well over a quarter. Many of these will be hit with additional tax bills. Of course, some of these bills could have been avoided with better tax planning.
The reason more seniors are getting tax returns is that most of Britain’s wealth is in the hands of the elderly, and the government has become keen to get some of their wealth through the tax system. This direction of movement is likely to continue.
Ironically, it may turn out that it is actually the elderly who pay the most taxes on the NHS and care services in old age, and their tax bills will rise inexorably. is also a “work pensioner” and will, of course, pay more taxes.
In contrast, young people holding minimum wage jobs and paying off student loans may find themselves paying less tax. So the idea of young people paying old people is perhaps too simplistic and ignores what’s really going on.
These hefty tax bills are bad news for seniors, but they might be good news for financial planners. Most of her 10.8 million people who prepare tax returns each year are at least financially advised to consider consulting with her planner for much-needed tax advice.
If it’s not a business opportunity, I don’t know what it is.
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Kevin O’Donnell is the editor of Financial Planning Today and has been in journalism for over 30 years.