Paying For The Pandemic With A Wealth Tax

Prompted by the exceptional circumstances from the COVID-19 crisis, in April 2021 a Wealth Tax Commission was established. It was made up of two academics along with a barrister to assess whether an abundance tax could be desirable and deliverable in the united kingdom. Their aim was “to provide policymakers having a solid evidence base” and “to deliver the first in-depth analysis of a wealth tax in the UK for nearly half a century”.

The Wealth Tax Commission worked with international experts including tax practitioners, economists and lawyers to study all aspects of an abundance tax including “problems with both principle and practice”, and acknowledged funding from the Economic and Social Research Council through the CAGE at Warwick along with a COVID-19 Rapid Response Grant, in addition to a grant from Atlantic Fellows for Social and Economic Equity’s COVID-19 Rapid Response Fund.

Some key recommendations were:

• Should the federal government decide to raise taxes following a COVID-19 pandemic, a one-off wealth tax would raise significant revenue fairly and efficiently. It would be very difficult to avoid and in practice would work without successive administrative costs.
• An annual wealth tax could be harder to deliver effectively than a one-off wealth tax. Instead, the recommendations was for “major structural reform” of existing taxes on wealth.
• The one-off wealth tax would be assessed on the open market price of the baby assets on the given date net associated with a debts; could be payable on wealth above a certain threshold, and also the tax payable in instalments over 5 years.
• A date for determining the value for an individual’s wealth could be fixed on or shortly prior to the announcement of the wealth tax.
• There could be a choice for couples to be assessed jointly, having a combined allowance.
• Assets held in trust would be taxed by mention of residence of the settlor of the trust . When the settlor was not resident for wealth tax purposes on the assessment date, then the trust would only be liable if your beneficiary was resident, in order to the extent the trust holds UK-sited assets that are chargeable on non-residents.

Who would spend the money for wealth tax?

It could be payable by anyone resident in the united kingdom for more than four out of the previous seven years, including anyone claiming the status of a “non-dom”. Non-residents would pay the wealth tax on any houses and land owned in the united kingdom whether or not they own it directly or through trusts or companies.The Wealth Tax Commission didn't recommend extending the tax with other assets owned by non-residents except perhaps foreign controlling shareholdings of UK private companies.

Threshold and rates

The Wealth Tax Commission doesn't make any tips about setting thresholds or rates for that wealth tax, as it is their view this is a decision for politicians. However, the report contains illustrations of potential thresholds and rates, including what 5% rate applied to some number of personal wealth thresholds which range from lb250,000 to lb10 million.

A separate report in the Wealth Tax Commission gives detailed modelling of methods much could be raised by a wealth tax, and from whom, at different rates and thresholds. A one-off wealth tax on all individual value above lb500,000, for instance, and charged at 1% a year for 5 years would raise lb260 billion. By contrast, at a threshold of lb2 million, it might raise lb80 billion. As part of these illustrations, the Wealth Tax Commission clarifies that the wealth tax levied at 1% above lb500,000 would require a couple to possess net wealth exceeding lb1 million before any wealth tax would be payable.

Would there be any exceptions to paying the wealth tax?

The Wealth Tax Commission has suggested when, after an assessment date for the wealth tax continues to be fixed, someone suffers a drastic fall in their wealth for reasons beyond their control, it would be possible to provide some respite from the tax due. If an individual genuinely couldn't pay the tax out of income and savings within the standard period payment of 5 years, a “statutory deferral scheme” would apply so the tax could be deferred until there were sufficient liquid funds available. In the report, there's also a tentative suggestion of the indefinite deferral in which a person’s wealth goverment tax bill was more than 10% of the combined total of net gain and their liquid assets.

Would any assets be exempt?

The Wealth Tax Commission cites four reasons for taxing all assets but recommends that there should be an exemption for any single item worth less than lb3,000 to prevent unnecessary valuations and make filing simpler. It would also imply that for most individuals there would be no need to value any of their ordinary household possessions.

Would the wealth tax be a one-off?

The Wealth Tax Commission suggests a one-off wealth tax arguing that it are the best for that economy than rises in VAT, tax or National Insurance Contributions.

Why not reform other taxes on wealth?

The Wealth Tax Commission’s recommendation for any one-off wealth tax, they explain, is definitely an exceptional response to a particular crisis to boost revenue “without discouraging work or spending”. They acknowledge it would not fix the present problems with inheritance tax, tax on investment income, council tax or capital gains tax so they suggest that there should be reform of existing taxes on wealth too.