A one-off wealth tax to pay off the Covid-19 deficit has been dismissed by tax experts who say a Conservative administration is unlikely to back the recommendations outlined in a report.
The report, A wealth tax for the UK, from the Wealth Tax Commission outlined proposals which included a potential one-off tax on people who have assets of £500,000.
Their assets would include their main home and pension pots, liabilities like mortgages would be decided and then a 1% tax on their total assets would be payable over a five year period.
The report said a one-off wealth tax of 5% (over five years) would raise at least £260bn including administration costs.
Canada Life tax and estate planning specialist Neil Jones said wealth taxes were seen as “regressive rather than progressive by the electorate”.
He added: “By any measure, the UK is already one of the highest tax-paying nations in the G7. As welcome as a debate on the pros and cons of introducing a one-off wealth tax may be, many countries across the world have tried and failed to implement similar moves.
“It’s thought of as regressive rather than progressive by the electorate, and ultimately as any change would be a question for the political elite, is likely to be as popular as turkeys voting for Christmas.
“Rather than focus on tax-raising measures, we should be looking at growing our way out of the hangover from the pandemic, through job creation and security, not a one-off tax on wealth.”
Kingsley Napley private client team head James Ward said the 1% above £500,000 as a one-off tax was an “interesting concept which would certainly raise a lot of money and lessen the need to significantly reform current taxes”.
However, he added: “A government would have to be exceptionally brave politically to consider introducing such a tax – even on the back of the unprecedented and costly coronavirus situation which we all understand needs to be paid for.
“There would need to be an alternative method of payment options for asset rich, cash poor individuals and careful consideration would need to be given as to how mortgages come into play.
“Someone may have a £1m house, for example, but have debt of over £500,000 and therefore be under the threshold. What else contributes to the wealth level should arguably also be taken into account – cash, investments, overseas property, cars, paintings, wine etc – and as a result, some creative avoidance methods could emerge.
“In my view, this is unlikely to be introduced by a Conservative government but perhaps the threat of a new wealth tax will help to sell other measures.”
Ward added he feared that the “mere suggestion” would encourage capital flight out of the UK which “is clearly not what we need in the current climate.”
Tax and advisory firm Blick Rothenberg said the move could push thousands of families who are asset rich but cash poor into debt.
Chief executive Nimesh Shah said: “This could push thousands of households who may be asset but not cash-rich, into debt. A family owning a detached house in southern England with a modest pension and ISA savings could easily be caught.”
He added there were serious questions around how someone would pay if they had cash liquidity problems.
“The Wealth Tax Commission notes that 570,000 people may be liquidity constrained at the £500,000 wealth threshold, and an instalment payment mechanism would need to be introduced ‘to reduce unnecessary hardship’ – it is worrying that a new form of tax could force people into hardship and a serious re-think would be needed.”
Shah also raised fears that any future government could make the tax permanent if it wished to do so.
He explained: “The argument for making the tax permanent is even more compelling after the considerable time and investment that would go towards introducing it in the first place, and the government may be reticent to lose the tax revenue without easily replacing it.
“It’s a bitter pill to swallow when you take something away that generates such attractive rewards.”