The Wealth Tax Commission issued its final report on Wednesday, summarising its findings and recommendations in relation to a possible Wealth Tax. It suggested that a one-off tax, perhaps to be called the “Covid Recovery Tax” would be a good way to help pay for the unprecedented costs arising from the Covid-19 pandemic.
The Commission was established in the Spring of 2020 to consider the merits and workability of a Wealth Tax. It considered over half a million words in 36 evidence papers, including detailed studies of the operation of wealth taxes in seven different countries. It is important to note that whilst contributions were made by HMRC and HM Treasury, the views expressed are those of the Commission alone and do not represent government policy. The Commission is wholly independent – this report was not commissioned by the Government; it was in conjunction with the London School of Economics and Warwick University. The three Commissioners were self-confessed “tax nerds”, two Professors in academia (one of economics and one of tax law) and one leading tax Barrister.
The key conclusion and recommendation was that an annual Wealth Tax would be a non-starter but a one-off Wealth Tax would be an effective way of raising significant revenue to pay for the pandemic. It also strongly suggested that existing tax legislation should be amended because the UK tax legislation in far too complex.
Summary of Key Findings
- A one-off Wealth Tax could raise significant revenue (an estimate of £260 billion was provided, on the basis of a 5% tax, spread over 5 years on net wealth above £500,000, though other examples were given).
- It was unlikely to affect individual behaviours and so would be economically efficient.
- It would raise more money from those with ‘broader shoulders’.
- If well designed, it would be difficult to avoid.
- The charge should be based on residence, not domicile but could be structured to protect those who had only been UK resident for a short period of time to ensure fairness.
Additional interesting comments came in relation to the potential design of a one-off Wealth Tax:-
- The tax should be levied on individuals rather than households.
- It should include all assets, including illiquid assets, such as pensions.
- Valuations should be at open market value.
- A deferral system was felt to be sensible for those with liquidity issues or who were “asset rich but cash poor”.
The report is simply a series of recommendations, though noting this is a substantial piece of work and much credit must go the Commissioners for undertaking such a comprehensive review and analysis. This does not necessarily mean that we are going to see the introduction of a Wealth Tax in any form any time soon; in fact, the Chancellor spoke out very strongly against a Wealth Tax as recently as July this year.
As everyone will be aware, the UK has a substantial and growing budget deficit. It remains to be seen how the government will deal with this difficult challenge.
With much of Parliament’s focus currently on the pandemic and Brexit, it may be that the work of the Commission is of less prominence than it would be in ‘normal’ times. We expect that the debate on this topic will continue.
The Conservative 2019 election manifesto promises included:
- No VAT increases.
- No Income Tax increases.
- No National Insurance increases.
- Maintain the Corporation Tax rate at 19%.
This leaves the Chancellor in a difficult position, he must either break election promises or think imaginatively in a way which will ruffle as few feathers as possible; a very difficult political balancing act indeed.
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