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Is the time right for an annual wealth tax?

Jennifer Adams considers whether the time is right for a complete change in our tax system structure.

5th Mar 2021
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This week Rishi Sunak stood in a nearly empty House of Commons and unveiled his Budget. He has a peacetime high deficit of 355bn on his hands and needs to find a delicate balance between starting to pay off the deficit and pumping enough money into the economy towards a sustained recovery.

This was not the Budget to push for too drastic reform as there will be some painful moments ahead but perhaps now is the time to look at the structure of our tax system as a whole to see whether it is relevant to the times were are in and the times that are coming.

Tax the wealthy?

Ask any taxpayer what they would do to reduce the deficit and the majority will say the same thing - tax the wealthy. But how and which tax rates do you raise? How do you quantify 'wealth'?

Government tax revenue does not necessarily increase as the tax rate rises. There is a peak tax rate where government revenue is highest and then falls (as indicated by the Laffer Curve.) So should a different type of tax be considered, such as an annual wealth tax?

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Replies (22)

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By ireallyshouldknowthisbut
05th Mar 2021 15:23

Seems unlikely when your chancellor is worth £200 million, and his wife is a billionaire.

Moreover valuation is very hard on most peoples biggest asset - the place they live.

Look how bad the council tax valuations are, which is a much neater solution but central government wouldn't do it as they dont want local gov to have any cash.

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Replying to ireallyshouldknowthisbut:
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By silverghost
08th Mar 2021 10:38

Council tax really ought to be absorbed into income tax - there is no need for this separate scheme to continue any longer. Most councils charge the same anyway.

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By philrob
05th Mar 2021 17:34

What is inheritance tax if not a wealth tax?

You earn money throughout your life (mostly paying tax en route) and when you die the government takes 40% of any wealth that you have retained above the IHT limit.

As an aside, there is no such thing as a one off tax. Income tax wasn’t intended to be long term (and only a small fraction of the population with high income paid it at the time)

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By soundadvice
07th Mar 2021 13:16

Not sure I like the idea of an annual wealth tax as it could create a serious "cash flow" problems for tax payers depending on how the wealth is invested.

My preference has always been for a 20% inheritance tax with a low threshold on assets when the surviving spouse/partner dies.

Currently 5 billion is raised in IHT from around just 25,000 people annually.

500,000 people sadly die each year and if lets say the average wealth is around 200,000 (quite likely given average house prices) then the extra 475,000 IHT payers could raise around 19 billion a year.

No doubt many people would squeal but if the money has to come from somewhere why not from here?

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Replying to soundadvice:
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By Paul Crowley
07th Mar 2021 17:27

Agree that IHT is paid by mostly volunteers who did not do the planning.
But changing rules would just increase the planning
The real tax take would be the income tax from IHT tax planners

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By AndyC555
08th Mar 2021 10:23

“We had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” Dennis Healey - from his memoirs.

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Replying to AndyC555:
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By Peter Bromiley
08th Mar 2021 10:50

Nice find. He's the first Chancellor I was aware of - mainly thanks to Mike Yarwood.

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By AndyC555
08th Mar 2021 10:27

"the valuation of pension rights"

Can you imagine the howls of protest from the public sector if the value of their pension pots was included? And the outright inequality if they were not?

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By Duggimon
08th Mar 2021 10:44

"Further, a study from the Cato Institute found that "altogether, European wealth taxes generally brought in around 0.2% of GDP in revenues"."

Or, in other words, for the UK it'd raise about 4-5 billion. I don't think a one off tax will cut it, we'd need that for over 70 years to plug the hole.

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By johnjenkins
08th Mar 2021 10:50

Your headline and supporting subline are two different things.
Yes our whole tax system should be restructured but it won't be.
We already have a wealth tax 40% on earnings over £50k and IHT and CGT and dividend tax etc. etc.

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By supremetwo
08th Mar 2021 11:16

Wealth tax = Goodbye UK.

Abolish IHT altogether and more wealth will remain in the UK rather than departing for overseas and more wealth will come here.

How about raising IHT to USA levels ($11.2m per person and $22.4m for married couples) and then some of the Monaco residents (plenty of other havens are available) might return here?

That wealth is likely to generate more income tax, more VAT, more Council tax and more employment opportunities than IHT.

https://taxfoundation.org/estate-and-inheritance-taxes-around-world/
"Thirteen Countries or Tax Jurisdictions Have Repealed Inheritance or Estate Taxes Since 2000"
Macau 2001, Portugal 2004, Slovak Republic 2004, Sweden 2005 Russia 2005,
Hong Kong 2006, Hungary 2006, Singapore 2008 Austria 2008, Liechtenstein 2011, Brunei 2013, Czech Republic 2014, Norway 2014.

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By Kentwillumsen
08th Mar 2021 11:20

Wealth tax would never tax the really wealthy as they would move their wealth into trusts; limited companies or abroad.

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By NeilW
08th Mar 2021 11:46

"There is a peak tax rate where government revenue is highest and then falls (as indicated by the Laffer Curve.) "

Which has been debunked more often than enough and yet still people talk about it as though it is reality. There is no such thing. It is a complete fallacy. It's the equivalent of pulling back on the stick when an aircraft stalls because you want to go up. You have to learn that although that feels right, it is entirely the wrong thing to do.

I'm still amazed that people on an accounting site can't do the obvious geometric series for tax in the aggregate. My spending is your income less tax. Your spending is my income less tax. Which means, unless somebody doesn't spend their income (ie saves) that any amount of government spending will be matched to the penny by tax raised for any positive tax rate. All that changes is the number of 'hops' required to get there.

Since the deficit is simply people saving in the currency of issue and then swapping them for bonds, the obvious approach would simply be to tax away all the bonds. At which point you would ask what have you got against saving?

If people save financially there will be a deficit. And when they spend those savings that deficit will be closed up by the increased transactions induced by the additional spending.

It's just a stone skipping across a pond. Saving merely pauses the video for a while with the stone in mid air.

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Replying to NeilW:
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By Ian_mcdonald
08th Mar 2021 14:25

NeilW wrote:

If people save financially there will be a deficit. And when they spend those savings that deficit will be closed up by the increased transactions induced by the additional spending.


Interested to hear your views about the leakage of increased spending - when the UK spends, a very large part of it is on imported goods and services which can be either direct, or incorporated into UK sourced products - how much does that "leakage" damage our economy (and tax take) and stengthen our competitor countries?
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By petestar1969
08th Mar 2021 12:18

A wealth tax is all very well but most wealthy people's wealth is not in liquid assets. Jeff Bezos may be "worth" $177 billion but most of that is due to his shareholding in Amazon. To realize that into cash and pay a wealth tax, he would either need to sell some of those shares (assuming someone wants to buy them for the right price), or borrow the money.

I can't see it working.

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By Ian McTernan CTA
08th Mar 2021 12:20

No. Annual wealth taxes are a stupid idea, generally drooled over by the more loony of the left.
In practical terms they are almost impossible to administer and raise very little.

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Replying to Ian McTernan CTA:
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By supremetwo
08th Mar 2021 13:30

Ian McTernan CTA wrote:

No. Annual wealth taxes are a stupid idea, generally drooled over by the more loony of the left.
In practical terms they are almost impossible to administer and raise very little.


And accountants?

Just think of all that extra work.

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By JohnB
08th Mar 2021 14:05

Lots of questions raised here but at least one is easy to answer: How do you quantify wealth?
Easy - It's anyone with more money than you.

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By JohnB
08th Mar 2021 14:05

Lots of questions raised here but at least one is easy to answer: How do you quantify wealth?
Easy - It's anyone with more money than you.

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By ASF
08th Mar 2021 14:24

Just not sure I can see how a wealth tax could either do much to significantly up the tax take, or re-distribute between richer and poorer (and, of course, these are 2 different - not necessarily complimentary - objectives). As said, the problems of implementing an ongoing wealth tax system without some re-alignment in many of the other taxing regimes at the same time seem massive, to me. A "windfall" wealth tax would have to be astronomical to raise enough to seriously help with the financial impact of Coronavirus, to my mind. Someone mentioned pensions. Afraid I don't know anything special about public sector pensions, but, on the assumption many may be DB schemes, then the concept of "value" seems less relevant than income, and the tax system already deals with that. Taxing "value" in any pension fund scenario seems odd, as the whole system is predicated on the "no tax going in, taxed on the way out (via Income Tax)" principle. Equally, being asset-rich and income-poor would seem to mitigate against major success on the wealth tax front, and of course, any attempt to force people to liberate assets, just to pay the tax doesn't feel much different to the current IHT system, where people with significant taxes to pay are sometimes seen to gift them to organisations like the National Trust. No bad thing, perhaps (except for the upkeep issue), but does nothing to raise tax funds. And, as said, those who can afford to, will just "offshore" their assets to avoid the taxes.There is a small part of me thinks that accumulating wealth to leave to future generations doesn't feel great, but, on the other hand, what would that say about the idea of working, saving prudently, and having control of what to do with it in later life, and on death? Why should people not be able to choose what to do with it, subject to taxing excessive death transfers (but don't for God's sake ask me to define "excessive"!!). It's a conundrum for sure, and I suspect some mash-up of a number of different approaches might end up being offered up as a solution, ultimately. For example, finding a more equitable method of taxing of the multi-national companies earning vast amounts from jurisdictions they pay little, or no, tax in, at present, might not be a bad thing.

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By michaelblake
08th Mar 2021 14:27

I still have a copy of Dennis Healey’s Green Paper somewhere. A determined chancellor couldn’t make it work then. I doubt that this one could make it work now.

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By flightdeck
08th Mar 2021 14:39

Instead of the same-old-same-old : more taxes and more cuts howabout the government does something PRODUCTIVE like boosting industries and companies so more people have jobs so benefit cost is lower, more income tax and more corp tax paid etc.

They NEVER put forward a plan for growth just DAMNED LAZY plans to TAKE.

GRRRR!!!!

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