Wealth tax report gives “policy cover” to increase existing taxes

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An influential report proposing a single 5% wealth tax in the UK could pave the way for broader increases in inheritance and other capital taxes, financial advisers have warned.

They were responding to this week’s publication of a study by a well-respected Wealth Tax Commission, led by academics from the University of Warwick and the London School of Economics, which suggested that a one-time 5% levy on assets, including primary residences, could raise £ 260 billion to repair the country’s public finances ravaged by the pandemic.

Advisers said that while such a tax would be politically difficult for a Conservative government to implement, the proposal could help pave the way for an increase in existing UK taxes on assets, including the capital gains tax As well as inheritance tax.

Chancellor Rishi Sunak has launched a capital gains tax review, which has sparked speculation that rates could be increased to close the gap with income tax rates.

“It is difficult, but not entirely impossible, to imagine such a radical proposal [as a new wealth tax] proposed by the government, ”said Rachael Griffin, tax and financial planning expert at Quilter, the investment management firm.

“What this report can do is smooth the path of tax increases in the existing system. If the Chancellor was inclined to squeeze more income from existing capital taxes, such as capital gains tax and inheritance tax, he now has political cover, as he may indicate that the The alternative is a £ 260 billion raid on personal wealth.

Richard Jameson, partner at the accounting firm Saffery Champness, added: “The future of taxation is debated and solutions are needed. Treasury committee examines tax after coronavirus and Office of Tax Simplification recently [reported] both on capital gains tax and on inheritance tax. It seems clear that a change is on the horizon, perhaps from the 2021 budget. ”

While Mr Sunak and Prime Minister Boris Johnson have both previously rejected the idea of ​​a wealth tax, the country faces “an unprecedented period”, Mr Jameson said. “It is widely recognized that tax increases will play a role in rebuilding public finances following the Covid-19 crisis. “

The Wealth Tax Commission report suggested that a levy could apply to an individual’s assets over £ 500,000 (or £ 1million for couples), including pensions and primary residence – minus debts such as mortgages.

This would affect around 8 million UK residents, or around 17% of the adult population, including “non-doms” and recent emigrants. People would pay in five equal installments over five years, based on the market value of their assets on a specific date.

The inclusion of the primary residence would mean that people who have benefited from the rise in house prices over the past decades would be affected, thus exposing many middle-class professionals to a possible levy.

“In many places, £ 500,000 gets you nothing more than a small one to two bedroom apartment,” said Mark Florman, chairman and CEO of Time Partners, an investment advisory firm. “I fear that this tax will fall once again on middle incomes and those who have saved a lot for their retirement.”

However, Robert Palmer, executive director of Tax Justice UK, a campaign group, argued that the proposal showed the government had alternatives “other than raising taxes on struggling middle incomes.”

“Those with the broadest shoulders must shoulder their fair share of the burden as we move forward,” he said.

Meanwhile, advisers have warned that some “asset-rich but cash-poor” farmers, retirees, business owners and landowners may struggle to pay.

The Wealth Tax Commission report suggested that these people should be given more time and that the retirement wealth tax be paid out of the retirement pension lump sum. But some critics have argued that this will not be enough to keep people from getting into debt.

“There is a serious question about how someone pays wealth tax if they don’t have immediate cash,” said Nimesh Shah, managing director of accounting firm Blick Rothenberg. “It is worrying that a new form of tax may put people in difficulty and that a serious overhaul [be] necessary.”

Jo Bateson, partner at KPMG, warned that a lack of relief on company assets would have a “big” impact on family business owners. “This could mean that the company would have to finance the wealth tax, which would have implications for investment and growth,” she added.

Farmers could also run out of money to pay, said Sean McCann, certified financial planner, at NFU Mutual. “Distressed farmers could be unwitting victims of this proposed tax. “


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