Millennials are "picking up tax burden from baby boomers"
The financial gaps between generations have long been debated. Has anyone ever told you things were more difficult in their day? With so many factors to take into account, questions like this will always be tricky to prove or disprove.
That said, changes in tax policy have hit younger generations hardest, according to headlines this month. Accountancy firm Moore Stephens, which did the research behind the stories, says as baby boomers continue to retire, the tax burden will shift to millennials at an even more dramatic rate in coming years (not good news, I know).
So, what’s happening?
The numbers: a 3% fall vs an extra £5 billion in tax
The tax burden has fallen 3% in the past year for baby boomers but millennials paid an extra £5 billion in tax in the same period, according to the study.
The researchers defined millennials as those born between 1977 and 1995 and baby boomers as those born between 1946 and 1965.
A lot of the discrepancy is down to the fact that as baby boomers retire their taxable income falls, while millennials and generation Xers’ income is increasing as they progress in their careers and earn more, they say. But that’s not all of it…
Moore Stephens says recent tax policy changes disproportionately favour baby boomers at the expense of younger generations (millennials and generation X), which is speeding things up.
How is the proportion of income tax paid by millennials increasing?
Millennials now contribute more than a quarter (25.1%) of the entire income tax take. This generation saw the largest increase in income tax paid the last year (2015-16).
They paid £41.4 billion in income tax, up 14% from the £36.3 billion paid the year before.
On the other hand the proportion of income tax paid by baby boomers has decreased. Baby boomers paid £63 billion in income tax last year. This is 38% of the overall income tax take, compared to 40% the year before.
Moore Stephens’ research found the share of generation X’s (those born between 1965 and 1977) tax burden was fairly static.
What about other taxes?
Stamp duty land tax increases (SDLT), restrictions on the amount individuals can save tax free through pensions, and increases in tax and national insurance on high earners are all likely to have more of an impact on millennials than baby boomers, the researchers say.
SDLT has risen to £11.7 billion in the last year, up 10% from £10.6 billion in 2015-16. Moore Stephens says millennials are more likely to move into a new property.
Moore says: “Younger generations are likely to face the cost of funding the increased care that comes with an aging population. Making the tax system fair for all is a tough ask – but the numbers suggest millennials may have grievances.”
Read more: Six steps to start off investing