Chancellor Rishi Sunak has rejected the idea of a wealth tax hike to pay off the UK’s £280bn Covid debt.
Sunak was presented with plans for a one-off levy on those with assets over £500,000, including their home and pension.
Last month, the Wealth Tax Commission, a group set up by the London School of Economics and Warwick University, issued a report that revealed a five per cent tax on assets over £500,000, or £1m per household, would raise £260bn.
The group of tax experts and economists said taxing the wealthiest in society would be a more efficient and fairer way of raising funds to sure up crisis-hit public finances than taking aim at the incomes of the wider population or consumer spending.
The chancellor has ruled out the suggestion, arguing it would be “un-Conservative” to go against the party’s values.
But industry commentators believe his rejection to the wealth tax could mean proposals to hike up capital gains tax are still on the radar as he seeks to rebalance the books.
Quilter tax and financial planning expert Rachael Griffin says: “Once more, it won’t be the quick fix to the public finances as many hope. The levy will be complicated, which adds time to the policy making process. Even with the necessary government support when you consider the Treasury’s usual timeframe for policy changes and the added complexity of the levy, it could take five years to go through the policy design process and through parliament to become an Act.
“That said, there’s no hiding from the fact that the UK’s finances are in a perilous position. Although the chancellor has ruled out a new tax on wealth, it’s likely he will look to tweak pre-existing taxes on wealth including CGT and IHT, and calls for a new wealth tax will soften the path for the chancellor to do so.
“With CGT, the chancellor could follow the lead of the Office for Tax Simplification and bring CGT rates in line with income tax, scrap CGT uplift on death or lower the annual exempt amount. Indeed, Rishi Sunak could go for a combination of all three.”
Foresight group director Claire Alvarez also argues that any proposed change to CGT, which is expected to come into effect in April 2021, is likely to increase the rate of tax for entrepreneurs looking to sell their companies. “We therefore expect there to be a flurry of activity in Q1 2021, due to a combination of the predicted tax change and recent positive news surrounding a Covid vaccine.
“The amount of work involved in a sale should not be underestimated, and any shareholders looking to divest their assets will need to act swiftly to allow enough time for negotiations and due diligence.”
Bitter pill to swallow
Griffin tells Money Marketing the introduction of a wealth tax “was always unlikely to be a vote-winner as it would be a bitter pill to swallow for many Conservative voters”.
She says: “In fact, the greatest backlash would have likely been from backbench Conservatives who would have borne the brunt of angry constituents. Indeed, the chancellor himself has labelled the tax as ‘un-Conservative’.”
Aside from this, the introduction of a wealth tax is likely to throw up a number of practical problems, she suggests. “What happens to those with considerable illiquid assets but few liquid assets? What happens to older generations who will need their wealth to pay for future social care costs? What happens to those saving for a deposit on their first home? How would you value an insurance or pension policy which isn’t sat as a capital sum in someone’s account?”