A proposal by academics from LSE and Warwick University to raise £260billion with a one-off wealth tax on all the private property of those with £500,000 or more of assets was published on 9 December. The Wealth Tax Commission report “A Wealth Tax For the UK”.
It proposes that the private wealth of those whose assets exceed £500,000 should be taxed at a one off rate of 5% of their value at a given date. The tax then due would be paid in 5 yearly instalments. The assets which would be assessed for this one-off tax include everything owned by the taxpayer such as main residence, pension funds, savings, property, business assets and chattels above £3,000. Outstanding debts and mortgages would be netted off.
The report claims that this is the fairest and most efficient way to fund the Government debt, now approaching £400 billion. The basis of this claim appears to be founded on the public opinion poll the commission undertook, which asked respondents to state their preference for raising tax amongst the options of:
It is not surprising that a wealth tax was popular, as tax rises which are perceived to be paid for by others always are. These proposals however would touch the life savings of 17% of the population, many who might not consider themselves to be especially wealthy. The inclusion of the individual’s main residence and pension savings in the assessment means that the tax is likely to fall heaviest on those aged 55 to 65 whose life savings are at a peak just prior to retirement. The report acknowledges this but goes on to state that this is fair as this generation have been lucky.
While the increase in property prices over the 21st century has disadvantaged younger generations seeking to buy their home, it is not true to assert that those over 55 have had everything made easy for them. High unemployment and inflation in the 70s and 80s, eye watering mortgage repayments in the 90s following Black Wednesday, the dot com bubble of 2000s and the need to save for a longer lifespan and care costs are all challenges this generation have had to deal with. It could be considered unfair to raise a tax on only one section of society to pay for a health emergency which affects us all.
The Government have not yet responded to the report but earlier in the year Rishi Sunak rejected the concept of a wealth tax, preferring to pursue economic growth as the route to repaying Government debt. Politicians should consider that the savings of private individuals are what funds much of that economic growth. However, the Government appears to have limited its tax raising options with its 2019 Manifesto commitment not to increase income tax, national insurance or VAT. While manifesto commitments are usually sacrosanct, the Government may need to review this decision in the light of the unforeseen cost of the pandemic.
A more mixed approach to raising revenue would appear fairer and the Government are already considering reforms to Capital Gains Tax, Inheritance Tax and Pension Savings Tax Relief. The Government could also choose to take a longer view, as Governments did after WWII, with low interest rates making this feasible for inflation to reduce the debt over time.
This is only a proposal from academia and not Government policy, but politicians can be fickle, and may be tempted to adopt what appears to be popular. Any radical tax policy of this nature would require approval of the Commons and backbench MPs are unlikely to welcome these proposals.
If you have views on the ideas set out in the report, you may want to let your MP know what you think. We at LEBC will be keeping a watching brief on this and other proposals so we can shape our advice to you in the light of any changes in taxation policy.
Public Policy Director
Tax legislation changes and tax planning is not regulated by the FCA.
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