The Wealth Tax Commission, an independent body of academics, economists, and tax barristers, has published a report looking into the effectiveness of a UK wealth tax to pay for increased public spending as a result of the COVID-19 pandemic.
The report concludes that if the government decides to raise taxes in response to the crisis, a one-off wealth tax would be a better way to raise significant revenue, rather than increasing taxes on work or spending, as it would be harder to avoid and more efficient.
Experts estimate that a one-off wealth tax could raise £260bn over five years, which would be the equivalent to raising VAT by 6p or the basic rate of income tax by 9p for the same period.
The report emphasises that a one-off wealth tax would be in response to the specific COVID-19 crisis, and not a substitute for long-term reforms to existing taxes on wealth.
Key recommendations from the report include:
- Levying the tax on an individual basis, although with the potential to allow couples to be jointly assessed
- A range of options for tax rates and thresholds including:
- Tax at a 5% rate on net assets worth over £500,000 per individual (a threshold of £1 million per household) payable at 1% per year over five years; or
- Tax at a 5% rate on net assets worth over £2 million per individual (a threshold of £4 million per household) payable at 1% per year over five years.
- The tax would be based on all assets including main homes, pensions and business assets, as well as other savings and investments but minus other debts such as mortgages.
- Deferred payment spread over five years should be allowed in certain circumstances. For example, where the taxpayer is asset rich but cash poor, and in regard to pension wealth.
- There should be no exemptions or reliefs for business and agricultural property (no recommendation has been made in relation to heritage property).
- The tax should apply to all UK residents including ‘non-doms’, and individuals who had recently left the UK.
- Taxing non-residents on their UK real estate, whether owned directly or indirectly should be considered.
- Trusts will be taxed as separate entities and fall within the scope of a one-off wealth tax if the settlor was resident for wealth tax purposes in the tax year of the assessment date. If a trust is within the scope it will be taxable on the entire trust fund.
There have previously been objections to the introduction of a wealth tax, including concerns that those who are asset rich but cash poor, may have to sell assets or borrow in order to be able to pay the tax. In September 2020 the Association of Accounting Technicians (AAT) also published their own report in response to the Treasury Select Committee inquiry into Coronavirus & Tax in which they stated “Today, Spain appears to be the only EU country with a wealth tax. That has not happened by accident, No other EU country has a wealth tax because they are understandably keen to attract the wealthy, the investment they bring and the jobs they often create, Risking that does not appear either politically or economically sensible, especially when seeking to recover from a global pandemic.”