What could a 'wealth tax' look like?

Arguably the key, and most controversial, recommendation of the WTC was that the value of an individual’s main residence (net of any mortgage), their private pensions, and the value of business assets should be considered when working out whether the threshold for liability was crossed.    

Based on that model it was estimated that £260bn in tax would be raised. To achieve the same level of revenue from increases to other taxes over five years it was estimated that basic rate income tax would need to increase by 9p, or all income taxes by 6p.

A threshold at £500,000 was estimated to affect 8m individuals, or 17 per cent of the UK’s adult population.

If the threshold was only payable on assets over £2m rather than £500,000, the tax take was estimated to fall to £80bn.

Whilst rates and specific dates of implementation were not recommended, a number of broader points were.

A one-off tax

First, that a wealth tax needs to be credibly one-off. A key reason for not recommending an annual tax is that it would drive economically inefficient avoidance behaviours from those who might have to pay it.

It therefore seems obvious that, if the one-off nature of a wealth tax is not credible, this would still drive those broader, negative economic impacts.  

Minimising avoidance was also a significant factor in the WTC’s separate recommendation that the wealth tax should not be pre-announced. 

Why should two individuals with wealth of £1m, one primarily linked to listed equities and the other linked to their business or residence, be treated significantly differently? 

The recommendation that the tax should be based on the value of all assets (including business wealth, private pensions and main residences net of mortgage) was to meet the principle of fairness.

Why should two individuals with wealth of £1m, one primarily linked to listed equities and the other linked to their business or residence, be treated significantly differently? 

An issue created by the inclusion of pensions and properties derives from their lack of liquidity – namely the ability to pay the tax.

Those who haven’t, or can’t, access their pensions are given scope to delay payment until they do so, or until they reach state pension age.

Payment is ultimately expected to be taken from tax-free cash. The report also recommends the introduction of a statutory deferral scheme for those with liquidity issues, perhaps those who are property rich, but cash poor.

The valuation of assets is to be based on open market value at the date of assessment. The report indicates that pensions would be simple to value, which is probably true in the case of defined contribution schemes.