An independent body of tax experts has set out the framework for a one-off wealth tax. Will the Chancellor be tempted?
“[W]e have a responsibility, once the economy recovers, to return to a sustainable fiscal position.”
So said the Chancellor Rishi Sunak in his November statement, during which he also highlighted that the government was spending £280 billion this financial year on coping with the Covid-19 pandemic.
A wealth tax is one way that has been suggested to repay at least part of the massive debt that has accumulated. The idea was given a boost in December when a 125-page report detailing how a wealth tax could operate was published by the Wealth Tax Commission, which is independent of government. Its main proposals were:
· The tax should be a one-off, levied at the rate of 5% on individual wealth above £500,000.
· The definition of wealth would include allassets. So, for example, there would be none of the special reliefs for pensions, farmland or business assets that currently apply under inheritance tax.
· The valuation date would be on or shortly before the first formal announcement of the tax, to prevent post-announcement forestalling actions. The value of housing and land would in the first instance be calculated by HMRC’s Valuation Office Agency (VOA).
· In practice the tax payment would normally be at the rate of 1% (plus nominal interest) for five years.
· Deferred payments could be made by asset-rich, cash-poor individuals. For pensions, payment would be drawn from the tax-free lump sum, when benefits are drawn.
The Commission estimated that such a tax would raise a net £260 billion. It would be payable by 8.25 million people, meaning it would reach many who pay income tax at no more than basic rate
Rishi Sunak said in July, “I do not believe that now is the time, or ever would be the time, for a wealth tax”. However, as several commentators have noted, the Commission’s report has given the Chancellor cover to increase revenue from two related taxes he currently has under review – capital gains tax and inheritance tax.