The UK government has spent billions of pounds this year on fighting Covid-19 and on measures to safeguard jobs and businesses.

This unprecedented public spending has led many to wonder how the coronavirus bill will be paid for and how inequalities in society will be tackled.

So, it’s no surprise that discussions on the pros and cons of introducing a wealth tax are intensifying.

The House of Commons Treasury Committee held an evidence session on wealth taxes last month as part of its inquiry into ‘Tax after Coronavirus’.

And tomorrow (9 December), the UK Wealth Tax Commission will present its final report on whether a UK wealth tax is desirable and feasible.

What is a wealth tax?

Wealth taxes have been used by many countries over the years. The UK has never had a tax of this kind, although this method of raising revenue was considered here in the mid-1970s but never introduced.

A wealth tax is usually a tax on a person’s net wealth. In broad terms, it’s based on the total value of assets that someone owns, minus their debts.

Supporters argue a tax on assets would reduce inequality and boost public finances. But critics say it would be too expensive and complex to put into action, and that it would unfairly punish savers and prompt the well off to leave the UK.

How would a wealth tax work?

There are many questions to consider, such as who would be required to pay the tax and on what wealth?

One suggestion is a one-off tax on wealth, which some experts feel would be more straightforward than an annual tax. However, others point out that people might not be convinced that it would be just a ‘one-off’.

Other questions that need answering include:

  • How would a wealth tax affect people with low incomes relative to their wealth?
  • Should the tax be levied per individual or per household?
  • Would introducing such a tax put people off saving and investing?
  • How much revenue would it raise?
  • Would it be better to reform existing taxes instead?

Our thoughts

Creating a workable wealth tax would be a significant challenge to any government, but particularly for a Conservative one.

This type of tax might be considered alongside changes to the inheritance tax and capital gains tax regime, but I wouldn’t expect this to be anytime soon.

Developing a new tax that is fair and workable is a mammoth task at any time, let alone with the additional challenges of Covid-19 and Brexit. It’s likely any tax rises will need to come through the mainstream system – i.e. VAT, National Insurance contributions (NICs) and PAYE – to make any significant difference to lowering the current debt position.

When will the UK Wealth Tax Commission publish its report?

The commission’s conclusions on whether the UK should have a wealth tax will be published and discussed tomorrow (Wednesday 9 December) at 4pm.

Personal tax planning

The team at Churchill Taxation can help you with a range of tax matters, including planning for capital gains tax and inheritance tax.

Call us today on 07813 434195 or send an email to stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation