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Will a Wealth Tax Be Introduced?

on Friday, 18 December 2020.

The pandemic has had a devastating effect on the public finances, with current estimates expecting the deficit to reach 19% of GDP.

Rebuilding Public Finances After Coronavirus (COVID-19)

As a result the Government is looking for ways of replenishing the public coffers, and is considering a number of methods of raising revenue through taxation.

The most recent suggestion is a one-off 5% wealth tax on an individual's assets over £500,000 (£1 million for married couples). This has been proposed by the Wealth Tax Commission (WTC); the proposal is that the tax would be paid in five equal instalments over five years, based on the market value of the taxpayer's assets on a specific date.

The WTC, led by academics from the University of Warwick and the London School of Economics, estimates that this tax would be paid by 8 million people and would raise around £260 billion.

How Does the UK Currently Tax Wealth?

There are three main ways of taxing wealth and, at present, the UK uses two of these:

  • Firstly, there is a tax on the transfer of wealth; inheritance tax when someone dies is an example of this.
  • Secondly, there is a tax on returns on wealth - income and capital gains tax (CGT) cover this.
  • The third form of wealth tax is a tax on the total wealth of an individual.  This is based on the combined value of property, land, chattels (such as works of art), savings, investments and shares in companies.

What Considerations Should Be Borne in Mind?

When proposing a wealth tax, considerations include whether the wealth tax should include main residences and pensions. The WTC has proposed including these in the assets assessed in relation to the wealth tax.

A further consideration is whether the wealth tax should be one-off, or annual. Most wealth taxes, such as those in Switzerland, Spain and Norway are annual. However there are also instances where governments have implemented a one-off wealth tax, for example Japan and Germany after World War Two.

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Do Wealth Taxes Work?

Many European countries, including Austria and Sweden, have experimented with wealth taxes only to abolish them. Annual wealth taxes have an effect on behaviour, with wealthy individuals seeking out loopholes, or moving abroad. There is a heavy administrative burden.

The WTC report argues that a one-off tax would be difficult to avoid as it would be based on an individual's wealth on a single assessment date and therefore, could not be avoided simply by changing savings behaviour.

What Other Ways of Raising Taxation Is the Government Considering?

A report by Office of Tax Simplification (OTS) commissioned by the Chancellor Rishi Sunak earlier this year has proposed bringing the rates at which CGT is charged into line with income tax, and scrapping the tax-free uplift on death.

There have also been proposals to reform inheritance tax. The OTS produced two reports (the latest being in July 2019) and has proposed changing the rules on making gifts before death, and tightening the scope of business property relief and agricultural property relief.

When Might These Changes Be Introduced?

Some commentators believe that floating the idea of a wealth tax is in fact a way of paving the way for tax rises in other areas, and that changes to CGT and inheritance tax are more likely to occur than the introduction of a wealth tax. Announcements in relation to taxation are expected in the March 2021 Budget.


For more information on the proposed wealth tax, please contact Angharad Lynn in our Private Client team on 020 7665 0904 or complete the form below.

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