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Wealth Tax?

/ 16 December 2020

Geraint Jones

The Wealth Tax Commission was established in Spring 2020 with a brief to ‘provide in-depth analysis of proposals for a UK wealth tax’.  It’s not a government body (indeed, as recently as July Mr Sunak expressly set his face against a Wealth Tax).  Rather, the Commission is a ‘think-tank’ funded by the London School of Economics, Warwick University and the Economic and Research Council (itself a public body).  The Commissioners comprise a senior academic from each of LSE and Warwick and a very well-known tax barrister.

So, the conclusions of the Commission, published last week, do not reflect government policy; but nor are they the wild rantings of a party political clique.  They should be afforded some serious attention.

Readers may consult the full 126-page report here.  For the benefit of those with less time or inclination, the key points are below.

The report comes out against the idea of an annual wealth tax.  However, it’s strongly in favour of the levying of a wealth tax on a one-off basis to deal with an exceptional need – the need on this occasion being that of repairing the hole in public finances caused by coronavirus.  The basic premise is therefore based not on redistribution but pragmatism: if you are a government which needs to raise a large amount of money to fill an exceptional hole in the public finances, the best place to get it is from people who have it.

Interestingly, that pragmatism contrasts with the reasons that people who support the idea of wealth tax give for doing so: ‘filling a hole in public finances’ comes in only at fourth place, after ‘the gap between rich and poor is too large’; ‘the rich have got richer in recent years’; and ‘better to tax wealth rather than income from work’.

So, how do the Commissioners think a wealth tax should work?

  • It should be levied at the same rate on all assets including the family home, businesses and pension funds, including defined benefit schemes.  Special reliefs or exemptions would unacceptably reduce the yield, complicate the administration and afford opportunities for avoidance.
  • It should be levied by reference to wealth as at a single ‘assessment date’ with only very limited scope for reassessment or revision of the tax should there subsequently be a dramatic fall in value.
  • There would be the option to pay the tax over five years, with further deferral possible in closely-defined circumstances of illiquidity.  Payment of tax in respect of pension fund wealth would automatically be deferred until retirement.
  • There should be little or no advance warning of the implementation of the tax, so as to minimise the effect of ‘forestalling’ or advance planning.
  • The tax should, broadly, be levied on people who are tax-resident in the UK on the ‘assessment date’ and by references to assets whether in the UK or overseas.  But special rules would apply both to recent arrivals in the UK and to people who had left the UK shortly before the ‘assessment date’.
  • Non-residents would be liable only in respect of UK real property.
  • Trust assets would be included if the settlor or a beneficiary was UK-resident at the ‘assessment date’.
  • The assets of minor children would be aggregated with those of parents.  Spouses and civil partners could elect to be taxed as a unit.
  • An illustrative rate of 5% on assets in excess of £500,000 would mean that only 1 adult in 6 in the UK would be liable to pay the tax, and some £260bn would be raised.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

Geraint Jones

Partner, Private Client Tax

T +44 (0)20 8922 9354
E geraint.jones@bkl.co.uk

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