Yesterday the Treasury Committee published a report entitled Tax after coronavirus. Select committee reports are not always accurate indicators of future policy decisions (as to which see this intriguing paper). However, this report, released just before a much anticipated Budget, is likely to frame the post-pandemic tax policy agenda.
Of particular interest to tax practitioners and the wealth management industry is the report’s analysis of implementing a wealth tax.
The report concludes that an annual wealth tax could be inefficient (i.e. the cost of administering the tax might not be proportionate to the revenue raised) and may tax some individuals who do not have the means to pay the tax. In addition, it highlights that many other countries have abandoned their wealth taxes in recent years. Given this, the report does not recommend an annual wealth tax.
The report also considers the possibility of a one-off wealth tax, which might be more targeted and used to raise more significant revenue, on the basis that a one-off tax could be set at a higher rate than an annual tax. Against this is the fact that “a tax imposed once can be imposed again” and the retrospective nature of such a tax. Notably, the report does not rule out the possibility of a one-off wealth tax, simply presenting the arguments for and against.
Is it time for a root and branch review of how the UK raises tax?
The report concludes by recognising the “unsustainable long-term trajectory” of the UK’s public finances and the simple fact that either expenditure has to decrease or tax revenues have to increase. It recommends a comprehensive review and reform of the tax system focused on “how it can raise revenue in a way that minimises economic damage as well as effectively supporting public services, which can in turn promote growth”.
Tax policy involves balancing the need to raise revenue with the possibility of changing taxpayer behaviour. If tax revenue is to be increased (whether to finance the costs of the pandemic or simply to increase public expenditure), there will be hard debates to come. Although it seems that a wealth tax is unlikely to be imposed in this Parliament, this will offer little comfort to families and their advisers planning for the longer term.
We believe that the development and administration of an annual wealth tax would be extremely challenging, and we note that other countries have abolished such a tax in recent years. We would not recommend an annual wealth tax. It is recognised though that were the wealth to income ratio to increase considerably, the political arguments for some form of wealth tax would become stronger.