The Commission has now released a set of FAQs, which simplify and clarify the recommendations of the report.
In the FAQs, the Commission reiterate their recommendation for a one-off wealth tax to help cover the fiscal costs of the Covid-19 pandemic. They suggest that such a tax would be better for the economy than an annual wealth tax or increases in the traditional big revenue-raising taxes (income tax, national insurance, VAT) since, being one-off, it should not distort economic choices going forward. The authors appear confident that the public would believe in the “one-off” nature of the tax (which is central to its supposed economic neutrality), though it is easy to imagine that once the mechanism was in place it might be tempting for governments to turn to it again in the future.
The Commission also repeats the proposal to apply the tax to the worldwide wealth of anyone who has been resident in the UK for four out of the last seven years, even if they are no longer resident in the UK. Longer term non-residents would most likely only be taxable on real estate.
The FAQs also seem to embrace a possible extension of the tax on non-residents to some business assets, an idea which was only mentioned in passing in the original report. The Commission writes “We suggest that foreign shareholders could also be taxed on the value of their controlling shareholdings of UK private businesses (but not on their other wealth), to ensure a level playing field”.
One question left unanswered is how HMRC might go about enforcing the wealth tax in the context of non-residents. This would likely be a key source of difficulty with the Commission’s proposals, particularly in the context of assets that are not physically situated in the UK.
Some other notable points to emerge from the FAQs are as follows.
- Although the report made frequent reference to a tax rate of 5% on wealth over £500,000, the authors stress that rates and thresholds are political decisions and the Commission believes that a one-off wealth tax could work at a wide range of rates and thresholds.
- The assumption that the tax would primarily target those living in London and the South East may be misguided. Approximately 13% of British adults live in London, and with a wealth tax threshold of £5m, only 13% of individuals caught by the tax would be in London. At a threshold of £500,000, 16% of taxpayers within the ambit of a wealth tax would be in London.
- The tax would cost between £600m and £3bn to implement, which the Commission estimates would be around 1% of the revenue raised.
The Commission believes that, having read their report, the Chancellor, Rishi Sunak, may revise his view that there “never would be” a time for a wealth tax. Be that as it may, it remains unlikely that such a tax would be introduced by the current Conservative Government.
A one-off wealth tax would be an exceptional response to a specific crisis, aimed at raising revenue without discouraging work or spending.