- The Wealth Tax Commission was established in Spring 2020 to consider proposals for a UK wealth tax. It published its final report this month.
- The prospect of a Wealth Tax could be met with varied responses; for example: “am I bovvered?” or “nice problem to have”. But if the Wealth Tax Commission’s proposals go ahead it would affect a significant number of people. That much is evident from the fact that the projected “tax-take” could be “one-quarter of a trillion pounds over five years”. That could be contrasted with the annual tax-take for Inheritance Tax which is around £5 billion.
- The foreword to the report opens with two quotes. One from Rishi Sunak in July 2020:
“No, I do not believe that now is the time, or ever would be the time, for a wealth tax.”
- The other from John Maynard Keynes who said:
“When the facts change, I change my mind”.
- One should say at the start that the report’s proposals are not Government proposals and the Government did not commission the report. As the Commission says: “The Commission is entirely independent from government and our recommendations have not been endorsed by HM Treasury or HMRC.” Nevertheless, the projected additional tax revenue included in the proposal is likely to attract the attention of policymakers.
- Overall the report concludes that an annual wealth tax is a non-starter but that a one-off wealth tax could be seen as a means of sharing the burden of paying for the Covid-19 crisis across “those with the broadest shoulders”.
Particular features of the report’s proposals
- The report runs to 125 pages and covers a range of options. In particular, the Commission say they are not setting rates of tax or thresholds at which it should be payable. They say that is a matter politicians.
- Nevertheless, by way of illustration, the Commission suggest that a 5% rate on assets valued over £500,000 applied along the lines proposed would raise £260 billion.
- The Commission notes that at a threshold of £500,000 per individual, there would be 8 million taxpayers (the top 17% of UK adults by wealth).
- The tax would be assessed on the open market value of an individual’s assets on a given date.
- The assessment would include all assets such as main homes and pension pots, as well as business and financial wealth, but minus any debts such as mortgages.
- Every individual resident in the UK for tax purposes would be assessed.
- The tax would be paid over five years: in effect 1% a year for five years.
- The report cites polling data suggesting that in principle there is public support for a wealth tax. But one wonders if such support would hold up in the face of detailed proposals, particularly with a threshold as low as £500,000 and the inclusion of main homes and pensions.
- Many people with a net worth over £500,000 may not consider themselves to be especially wealthy, and a wealth tax may be perceived as threatening and unfair even by people with little or no exposure to it.
- If a 5% “one-off” tax were payable in instalments of 1% every five years, it may begin to resemble an annual tax – and invite a temptation to impose a new “one-off” tax in, say, five years’ time.
- The report acknowledges that annual wealth taxes are fraught with avoidance, valuation and administrative difficulties.
- On the face of it, for those who would be liable to the tax, giving assets away now to a person who has wealth under the chosen limit may help. But that approach is subject to many and various qualifications including in particular the date that is chosen for the tax to apply.
- The Commission has published a set of FAQs in relation to their proposals which can be found here: https://www.wealthandpolicy.com/wp/WealthTaxFinalReport_FAQ.pdf
Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Heather McKee: email Heather@mitchells-roberton.co.uk