|A well-designed one-off wealth tax would raise a total of £260 billion at a rate of 5% over £500,000 per individual…payable at 1% per year over five years. (Source: “A wealth tax for the UK”, Wealth Tax Commission, 9th December 2020)|
So says a report published last week by the Wealth Tax Commission, a group of leading tax experts and economists brought together to examine the case for a levy on assets.
The report argues this would be fairer and more economically efficient than alternative tax increases, such as raising rates of income tax or VAT.
The tax should be levied on all assets owned by an individual including their home, business assets and pension pots, with the only exception being personal items worth less than £3,000.
This proposal differs from some of those contemplated in the past, which were for an annual wealth tax. In a nod to work already done by the Office for Tax Simplification, the latter is rejected by the Commission in favour of major structural reforms of existing taxes on wealth such as Capital Gains Tax and Council Tax.
|It would be easy to dismiss the report’s recommendations as being politically unpalatable to the Tory Party, a position supported by Rishi Sunak who dismissed the idea of a wealth tax in July this year, and comments from the Treasury last week seeming to pour cold water on the recommendations.|
But the government is caught between the rock of its election manifesto promises not to raise income tax, National Insurance or VAT, and the hard place of the ever-increasing bill for tackling Coronavirus. There is no magic money tree and a wealth tax could also chime with the “levelling up” agenda which has been at the heart of Boris Johnson’s political mission since taking office a year ago.
My hunch is this will indeed turn out to be a bridge too far for the Conservatives. Having said that, I do think it provides further weight to the arguments in favour of simplifying and increasing revenues from inheritance tax and capital gains tax. The ‘spirit’ of the report also speaks to a renewed focus on reducing income tax reliefs, such as those available on pensions and some investments, which tend to benefit higher earners and those with above average wealth.
The next Budget is in March 2021. Putting long-term financial plans in place ahead of this seems increasingly wise.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.