In the ongoing debate over how the Chancellor is going to fill the gaping hole in public finances caused by the COVID 19 support measures, a new report published today by the Wealth Tax Commission, recommends a one-off wealth tax to be levied on those with individual wealth over £500,000.
Rather than introducing an annual wealth tax, the benefits of which the report says could be more effectively achieved by modifying existing capital taxes such as Inheritance Tax and Capital Gains Tax, the report recommends a one-off tax, citing its difficulty to avoid as one of the key features.
The commission advises that levying a charge of 1% per year (for five years) on individual wealth over £500,000 would raise £260bn, equivalent to increasing the basic rate of income tax by 9p, increasing all income tax rates by 6% (such that the highest rate of income tax would then be the mentally unacceptable 51%) or by increasing VAT by 6% to 26%. It is likely none of these ideas would be remotely popular, and the report identifies that such changes could result in erosion of the tax base, as those who can do so leave the country, or greater loss of tax owing to behavioural change.
On the other hand, wealth taxes have consistently been shown to be the most popular means of recouping the cost of COVID, although it is likely that this response is drawn from individuals who will largely not be faced with paying a wealth tax themselves.
So who will be looking at a new tax bill? While the tax is described as a one-off charge, the levy is to be paid over five years to enable funding by those who are ‘asset rich but cash poor’. Furthermore a 1%charge for five years sounds a little easier to take than a one-off 5% hit.
The proposed charge is to be levied on individual wealth, after taking account of joint shares of property, less any mortgage but including pension wealth. This latter point is aimed at equalising the position between those who have invested in traditional pension vehicles, and those who have instead utilised their wealth in entrepreneurial business, for example. Mortgages may be deducted, and where a charge arises on pension wealth, the tax due may be deferred until a cash lump sum is drawn- the idea being that if access to the wealth being assessed is delayed, then so ought the requirement to pay.
Property value will be assessed by the Valuation Office, but private company shares will need to be professionally valued at the taxpayer’s expense in order to ascertain the correct amount of tax. The report also advises that the point of wealth assessment should be on or around the date of announcement of the charge, to prevent shifting of assets around family groups in order to avoid the charge.
Overall, this a refreshingly new perspective, and references previous one-off taxes levied both abroad and in the UK to fund extraordinary expenditure, such as war or in windfall taxes. The commission does stress the point that this would need to be a one-off tax to avoid the undesirable behavioural changes and consequent economic disadvantage, but as an alternative to an annual wealth tax, it may be a slightly sweeter pill to swallow as we look to heal after the devastating effects of the virus.
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