Middle-class professional? Your lifetime tax bill could be £3. 6m

James Connington 12 March 2016 7:33am GMT Tax, in all of its myriad and often-changing forms, is unavoidable if we wish to make our contribution to society. But just how much tax does an

individual pay in a lifetime?   As George Osborne prepares to deliver his Budget on Wednesday, Telegraph Money provides an answer for one imaginary taxpayer who we have created to be

representative of our readership. The taxes we have included, and the assumptions we have made, are set out below. * April's savings tax changes: are you a winner or a loser? *

'Buying our family home will cost £7,500 extra thanks to new stamp duty' * New dividend tax: how it works - and how to avoid it  Our assumptions were partly informed by anonymous

information provided by readers who used the online budget calculator produced by Telegraph Money and accountants Blick Rothenberg at the time of last year’s Budget. Our analysis is not

intended to arrive at an “average” tax bill, as our imaginary taxpayer will be wealthier than most – although by no means extremely wealthy. All of the tax rules and rates used are for the

2016‑17 tax year, or, in the case of taxes that are to be phased in, such as the reduction in buy-to-let tax relief, the ultimate rates that will apply. THE LIFETIME TOTALS The monetary

figures are high because we are looking up to 60 years ahead. If you had £100,000 in 1956 (60 years ago), it would be the equivalent of more than £2m today.   All figures relate to an

individual, so incomes and gains that would be split between a couple (arising, for example, from jointly owned property) have been halved, including the inheritance tax bill. ALL INCOME

(INCLUDING SALARY, DIVIDENDS, PROPERTY APPRECIATION AND OTHER CAPITAL GAINS): £8,617,227 ALL TAX (FULL LIST BELOW): £3,571,986 EFFECTIVE RATE OF TAX: 41.4pc TAXES INCLUDED * Income tax

(including on retirement income and buy-to-let income) * National Insurance * Inheritance tax * VAT * Capital gains tax * Dividend tax * Stamp duty * Council tax * Insurance premium tax *

Fuel tax * Air passenger duty * Alcohol duty * Car tax OUR ASSUMPTIONS One half of our couple is a successful, married professional who starts work today on a graduate salary of £28,000 at

the age of 21, reaches  the current threshold for higher-rate tax at 30 and sees earnings peak at just over £115,000 at the age of 50, when wage growth stops. The couple retire at 67 and

live until 80. They have two children. Child tax credit has not been considered, so a small amount could be knocked off the total tax bill for that. They buy their first property at 33, move

to a larger home at 39 and downsize at the age of 60. At 55 they purchase a buy-to-let property, which is sold on their retirement at 67. Our earner invests tax efficiently, contributing

8pc of income to a pension via salary sacrifice, with 4pc added by the employer, and 10pc of take-home pay invested in a stocks and shares Isa, which is assumed to return 4.5pc a year. The

couple spend around 45pc of their after-tax income on goods and services that attract 20pc VAT, another 2pc on services that incur 5pc VAT, such as energy, and 32pc on goods and services

that attract no VAT.  * THE BEST OF TELEGRAPH MONEY: get our weekly newsletter The rest is saved, spent on holidays, put towards mortgage overpayments or used on expenditure not accounted

for otherwise, such as their children’s university fees. The proportions stay the same throughout their life, as their lifestyle improves with income. Reasonable assumptions for fuel and

alcohol consumption have been made, and the family take one long-haul and one short-haul holiday a year. * I've got £60k in cash. How should I invest it? * How to increase the chances

that your pension pot will outlive you Property is assumed to appreciate at 6pc annually and their pension assets at 4pc annually. At retirement, the earner’s Isa assets and the proceeds of

the couple’s buy-to-let property are invested to generate a 3pc annual income and 2pc capital growth. They buy an annuity with their pension pot. At death the children inherit their parents’

Isa, the invested proceeds of the sold buy-to-let and their downsized house. Inflation is assumed throughout to be 2pc (the Bank of England’s target rate). 1. INCOME TAX AND NATIONAL

INSURANCE: £1,533,152 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 17.8pc PERCENTAGE OF TOTAL TAX BILL: 49.2pc Our earning spouse starts at an effective rate of 18.1pc of salary for income

tax and National Insurance combined, after pension contributions are taken into account.  The rate rises steadily at around half a percentage point a year, peaking at 33.2pc at the age of

50. At the earner’s salary peak, take-home pay after tax and pension contributions is just under £68,000. The couple also pay income tax on their buy-to-let rental income (using the 2020‑21

rules), which leaves them with a small profit, although they benefit significantly from property price growth. The entire £1m lifetime pension allowance is used but not exceeded, and the

couple pay income tax on their £40,000-a-year annuity. 2. COUNCIL TAX: £83,071 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 1pc PERCENTAGE OF TOTAL TAX BILL: 2.3pc   Council tax on their

main residences is towards the higher end of the spectrum and rises at 4pc annually, including the additional 2pc annual rise that councils are now allowed to enforce. 3. CAPITAL GAINS TAX

AND DIVIDEND TAX: £140,154/£45,377 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 2.1pc PERCENTAGE OF TOTAL TAX BILL: 5.2pc This figure is greatly reduced by the use of a stocks and shares

Isa, meaning the only tax paid on growth and dividends is when the couple invest the profits on their buy-to-let property. If the money had been invested outside an Isa, the percentage would

probably double. * 'Telegraph 25': the definitive list of our favourite investment funds 4. STAMP DUTY: £107,500 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 1.2pc PERCENTAGE OF

TOTAL TAX BILL: 3pc   The buy-to-let property incurs the new surcharge of three percentage points on stamp duty on second homes, adding 50pc to the couple’s total lifetime stamp duty bill.

5. INHERITANCE TAX: £1,211,882 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 14pc PERCENTAGE OF TOTAL TAX BILL: 33.9pc The inheritance tax bill is included here, as it will be paid by the

couple’s estate. This bill is so large because their downsized property is worth a significant amount at the time they die and because their ability to live on their investment income and

annuity means that their assets are left intact. The Isa shields a large proportion of their capital growth and dividends from tax, but cannot escape IHT when the balance is passed to their

children. 6. VAT:  £323,599 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 3.8pc PERCENTAGE OF TOTAL TAX BILL: 9.1pc VAT is paid at 20pc on a large number of goods and services, including

cars, food served in restaurants and clothes. As with most people, our couple’s expenditure on goods that incur VAT (which applies to most “luxury” items) goes up with their income. The

figure of 3.8pc would vary significantly according to how frugal an individual is as their income increases. 7. FUEL DUTY, INSURANCE PREMIUM TAX, AIR PASSENGER  DUTY, ALCOHOL DUTY  AND CAR

TAX: £127,252 PERCENTAGE OF ALL LIFETIME INCOME AND GAINS: 1.5pc PERCENTAGE OF TOTAL TAX BILL: 3.6pc Anyone who has bought an air ticket recently knows that taxes account for a large part of

the price. The same is true of alcohol, fuel and tobacco.  Drivers need to pay their car tax, while insurance premium tax of 9.5pc is levied on many policies, generating billions of pounds

in revenue for the public purse each year. * 'I have £50,000 saved at 35. Can I retire at 60 with a £20,000 pension?' ARE WE TAXED MORE HIGHLY TODAY THAN IN THE PAST? According to

Martin Daunton, emeritus professor of economics at the University of Cambridge, taxes before the First World War amounted to 9pc or 10pc of the country’s economic output,  increasing to 23pc

during the war itself and around 35pc following the Second World War. “It has sort of jogged about there ever since – it’s a bit higher than that now, but it’s been within the same sort of

ballpark since the war and is similar to most countries in Europe,” said Prof Daunton. Apart from the transition from being an industrial nation, Prof Daunton said, it wasn’t “just a demand

from working people for better public services” that drove up tax but also “a realisation that in a modern society you have got to have them [services]”. He said that greater welfare

spending helped to mitigate the Depression of the Thirties, which acted to legitimise the higher level of taxation. For Prof Daunton, the most striking aspect of today’s tax system isn’t the

total amount that it raises but its complexity, along with changes in “the assumptions of what it is supposed to do for society”. He suggested that the change towards a less transparent

system “helps, rather paradoxically perhaps, to make the tax regime more acceptable than it had been. “I don’t think people quite realise what’s happening to them until the last minute –

that’s the big change from the past, where the aim was to keep the system transparent so people knew what was happening. “Now it’s more to do with stealth taxes, and complications where

people don’t realise quite what’s happening. There’s no way to stand back and make sense of it as a whole; it’s too complicated, which is dangerous.” Jonathan Isaby, chief executive of the

TaxPayers’ Alliance, agreed that streamlining the tax system should be something to work towards. He said: “An individual’s National Insurance contributions are effectively just another

income tax, and a stealthy one at that. It would be a very good move towards transparency and simplicity to merge National Insurance with income tax.” Mr Isaby also argued that stamp duty

acted “to gum up the housing market by making it more costly to move and downsize” and that the second home surcharge “will reduce the number  of rental properties on  the market, pushing 

rents up”. * HAVE A QUESTION FOR OUR EXPERTS? EMAIL [email protected]. THE BEST OF THE ANSWERS ARE INCLUDED IN OUR weekly newsletter