The Wealth Tax Commission (WTC) published their report in December 2020 which highlights possibilities for how a wealth tax could work in the UK, along with examples of how much public money it could raise at particular rates and thresholds.
The report considers two options: either a ‘one-off’ wealth tax (payable over 5 years); or an ongoing annual wealth tax. The WTC give favour to the ‘one-off’ option, coupled with reform of the existing capital taxes.
It is important to stress that the report was not commissioned by the government and Rishi Sunak has himself stated that he does not favour a wealth tax. However, the unprecedented strain that COVID-19 has placed on public finances has increased the deficit far more than the government expected. The government does not want a return to austerity, so it is to be assumed that taxation will be the viable alternative: that either means overhauling or raising existing taxes; or introducing new taxes. The WTC’s report is very likely to be of interest to policymakers, for this reason.
The WTC would see the one-off wealth tax paid by individuals with net wealth of over £500,000. The threshold would therefore be £1 million for a married couple. Once mortgages and other debts are taken into account, around 16% of UK adults would be liable to pay such a wealth tax on their net wealth. If the tax were applied at a rate of 1% over 5 years on the wealth of these individuals, it would raise £260 billion after the deduction of administration costs.
The report suggests that an individual’s wealth would need to be assessed either as of the date the tax was announced, or as of a past date in order to avoid people taking steps to reduce or avoid liability. It is also understood that there could be liquidity issues for those individuals whose wealth is tied up in pension pots that cannot yet be accessed, or in bricks and mortar. These issues could be resolved for those affected by permitting deferred payments.
There is a sense that the public may understand the need for a wealth tax and would support such measures over an increase in income tax, for example. However, support is naturally highest amongst those who would not have to pay the tax themselves.
While policymakers are likely to be interested in the report as well as its public reception, there is no indication at present that the government is looking to put this tax in place.
Certainly, it is very unlikely that the government would introduce a wealth tax without a general review of all other capital taxes.
All that can be done, for now, is to seek advice regularly to ensure that your Will and estate planning strategy suit your circumstances and take into account the prevailing tax regime.