We are all aware that the financial support the Government has given to businesses and individuals over the last nine months will have to be paid for.
Ways of increasing the tax raised to at least mitigate the
effect of this spending are restricted by the “triple lock” promise. In the
pre-election manifesto it was stated that there would be no increases to Income
Tax, VAT or National Insurance during the life of this parliament. The
government is no stranger to the U turn, but breaching this promise, even in
extraordinary times, would not be easy.
A recent report on a proposed wealth tax aims to create a
system for “sharing the burden of paying for the crisis across those with the
The Wealth Tax Commission issued its report on the rationale
for, and design of, a Wealth Tax on 9 December 2020. The Commission is a
self-appointed board of academics with no statutory authority or official role,
but nonetheless, its report comes at a time when public expenditure is
unprecedented during peacetime and cannot be wholly discounted.
However, in July 2020, only six months ago, Rishi Sunak
said, quite unequivocally “I do not believe that now is the time, or ever would
be the time, for a wealth tax”. He is unlikely to favour a tax which removes
disposable income from the economy at a time when it needs as much stimulus as
it can find.
The report considers using the tax to raise £250bn,
taxing all individuals with wealth above £500,000 at 5% payable over 5 years –
it is thought that this would involve 8.2 million individuals, representing
about 25% of all taxpayers. Since there are only about 4.6 million who pay tax
at higher rates, it would appear that about half those liable for a wealth tax
would pay tax at the basic rate or indeed not be taxpayers at all. Whilst the
affordability factor would affect everyone, it is likely to be particularly
problematic for this cohort who might be ‘asset rich, cash poor’.
There are many anomalies in the design of the tax. In order
for it to raise the required amounts, it would need to include pension rights
in some way, but this raises a minefield of problems where fairness between
occupational and personal pensions are concerned, or where pensions are already
Internationally wealth taxes have tended to be phased out in
recent years since they are difficult to collect encourage avoidance and are
deeply unpopular. A one-off wealth tax could ameliorate these concerns to some
There is no current mechanism to assess the tax and it would
take some time to make the necessary valuations and return mechanisms.
Politically that might mean that implementation of the tax might come in at
about the time of the next General Election.
Changing the rules for Capital Gains Tax (CGT) could raise significant amounts in the long term, and it bypasses many of the affordability arguments – in the vast majority of cases a liability for CGT arises precisely because funds have just become available.
CGT also falls outside the “triple lock” and has recently
been reviewed by the Office for Tax Simplification, which found it to be in
need of reform. We know that there will be a Spring Budget so those considering
capital tax planning would do well to implement any planned measures before
then. Raising CGT would not go very far in solving Sunak’s problems, but it
could be his first step.