The Wealth Tax Commission has recommended that a one-off wealth tax would be the best way to boost the UK’s finances in the wake of Covid-19.

The commission published its much-anticipated final report last week, in which it concluded a one-off wealth tax would be a better choice than an annual wealth tax to raise extra revenue.

It said a one-off wealth tax of 5% on total wealth above £500,000 per individual – payable at 1% per year over five years – would raise at least £260 billion. On this basis, the tax would be paid by the 16% of UK adults (8.2 million people) whose total wealth, after mortgages and other debts, exceeds £0.5 million.

Alternatively, a one-off wealth tax of 5% on net wealth above £2 million per individual – payable at 1% per year over five years – would raise at least £80 billion.

Why a one-off wealth tax?

In its report, the Wealth Tax Commission said a ‘well-designed’ one-off wealth tax would raise significant revenue in a fair and efficient way. It also concluded it would be very difficult to avoid and would work in practice without excessive administration costs.

The commission added that if the Government chose to raise taxes, it should implement a one-off wealth tax in preference to increasing taxes on work or spending.

What about an annual wealth tax?

The commission isn’t a fan of this option, concluding that the Government should reform existing taxes on wealth, instead of introducing an annual wealth tax.

The report’s authors said an annual wealth tax would be much more difficult to deliver effectively than a one-off wealth tax.

How would a one-off wealth tax work?

The report said the tax should apply to all UK residents (including non-domiciled individuals) and to those who have recently left the UK.
To prevent avoidance, it mustn’t be pre-announced, and it must cover all assets (net of debt), including main homes, pensions and business assets, as well as other savings and investments.

Valuation must be on an open market basis, and taxpayers should be allowed to defer payment in respect of pension wealth and in other limited circumstances, such as for those who are asset rich but cash poor.

What happens now?

The commission doesn’t say when the tax should be implemented or recommend specific tax rates or thresholds, but instead provides a range of options.

What’s more, the Conservative Government hasn’t shown any interest, to date, in a wealth tax.

In fact, the Chancellor, Rishi Sunak, said in July this year: “No, I do not believe that now is the time, or ever would be the time, for a wealth tax.”

And, in response to the Wealth Tax Commission’s final report, a Treasury spokesman told the BBC it had already taken steps to ensure the wealthy pay their fair share of tax.

Our thoughts

The objective for a wealth tax is to raise substantial revenue efficiently and fairly and in a way that is difficult to avoid. If achieved, it would be utopia for HMRC.

But based on the contents of the report, it seems a workable wealth tax is still a long way off. However, the dialogue around wealth taxes is intensifying.

It’s becoming increasingly likely we will have an overhaul of existing taxes on wealth, such as capital gains tax and inheritance tax, in due course. The question now seems to be ‘when’ this will happen, rather than ‘if’.

Trusted tax advice

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Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation