I have always viewed paying tax from a selfish perspective.
I don’t want to live in a country full of sick, uneducated people who don’t have access to basic services.
So, I pay my taxes without grumbling. I even believe that paying more could, in fact, make my life better.
But, like most people, I like to see what I’m getting for my money.
And forking over more hard-earned cash to pay down a massive and rising deficit means taxpayers likely won’t see any tangible benefit.
Therefore, a report published on Wednesday proposing a wealth tax for the UK is unlikely to be met with much enthusiasm by those it affects.
Admittedly, as a journalist, I don’t expect to be counted among them.
Wealth tax gains support over alternative forms of revenue raising
The Wealth Tax Commission report acknowledges that it has been nearly half a century since such a tax was seriously considered in the UK.
But added that a lack of information about the topic “risked leaving the UK unprepared” for a “critical debate” over whether it is the right course of action.
As a result, in April 2020, it commissioned a network of world-leading experts on tax policy to provide evidence.
“We drew heavily on international experience, commissioning detailed studies of the operation of wealth taxes in seven different countries, written by local experts,” the report authors state.
When compared with other ways of revenue raising, a wealth tax received the most support.
The report authors also considered the merits of a single wealth tax event versus an annual one.
For example, a one-off wealth tax payable on all individual wealth above £500,000 charged at 1% per annum for five years.
This would raise £260bn over that time.
If the threshold was raised from £500,000 to £2m it would net the exchequer £80bn.
The report described the move as “economically efficient”.
“Since it is based on wealth at a (past) point in time, a one-off wealth tax does not distort behaviour.”
However, its credibility lies solidly on it being a “one-off” and not levied again.
As such, the alternative is an annual tax.
However, the report quickly states that it would be better to reform existing taxes on wealth; namely inheritance tax, income tax on investment income, capital gains tax and council tax.
“An annual wealth tax would only be justified in addition to these reforms if the aim was to specifically reduce inequality by redistributing wealth.”
The example offered outlined a 0.6% levy on wealth above £2m, which would raise £10bn per year after ongoing administrative costs.
‘The idea that we will simply be able to lay the furlough bill at the door of a few rich individuals … is laughable’
“What a disappointment,” was the reaction from Chris Groves, partner in the private client and tax team at Withers.
“Wealth tax, as a concept, is one that is worthy of serious consideration and one which could well have its place in a progressive system.
“It’s a shame that the opportunity was not taken by this self-appointed commission.”
He continued: “The pandemic was a sudden shock to our economic system, but the idea that we will simply be able to lay the furlough bill at the door of a few rich individuals and then life will resume as normal, without that having any effect on economic activity, is laughable.”
Groves pointed to Dyson founder James Dyson and Ineos boss Jim Ratcliffe as examples of wealthy Brits setting up factories overseas.
“No further consideration need be given to this proposal which would have looked extreme in Jeremy Corbyn’s 2019 manifesto as it will never be realised.
“The most unfortunate thing is that the opportunity to stimulate a reasoned debate about the taxation of wealth has probably been lost,” he added.
Another hangover cure needed
For Neil Jones, tax and estate planning specialist at Canada Life, the UK is already one of the highest tax paying nations in the G7.
“As welcome as a debate on the pros and cons of introducing a one-off wealth tax may be, many countries across the world have tried and failed to implement similar moves.
“It’s thought of as regressive rather than progressive by the electorate, and ultimately as any change would be a question for the political elite, is likely to be as popular as turkeys voting for Christmas.”
Jones added: “Rather than focus on tax raising measures, we should be looking at growing our way out of the hangover from the pandemic, through job creation and security, not a one-off tax on wealth.”
Will the tax hit households that feel comfortable rather than wealthy?
Rachael Griffin, tax and financial planning expert at Quilter, can see why a one-off levy could be tempting for policymakers.
“It’s a bit like ripping off the band aid,” she says. “Which you might argue could be more appealing than implementing a range of small increases to existing taxes.”
But if chancellor Rishi Sunak is tempted to go down this route, Griffin thinks he would be more likely to propose a higher threshold, “in order not to penalise so many households, many of whom may feel comfortable but far from wealthy”.
The logistics behind calculating who breaches the threshold would also cause a headache.
“All of this complication means the tax would surely generate significant opposition. And it also risks sending out the wrong message.
“Government will be keen to project confidence and promote investment as the country seeks recovery from this crisis. A ‘soak the rich’ style approach is unlikely to do much to achieve this.”
Griffin added: “In practice, what this report may do is soften the path for tax increases in the existing system.
“Were the chancellor inclined to raise more revenue from existing taxes on capital, such as CGT and IHT, he now has some political cover since he can point to the alternative being a £260bn raid on personal wealth.”
For more insight on international financial planning please click on www.international-adviser.com