There is a saying which has become something of a mantra for many practitioners: “don’t let the tax tail wag the dog”; meaning that tax should not be the sole driver of investment decisions or other material transactions.
With the exception of this old adage, when it comes to private wealth advisers and questions concerning tax, the prevailing narrative is generally one of efficiency and minimisation.
As advisers there is often an expectation that our role is to identify the most efficient route to reducing tax bills. If tax efficiency is so prevalent then surely, by definition, tax has become synonymous with waste.
We need to identify and reflect on the nature and purpose of tax.
Taxation in the UK was brought in as a levy on persons or property subject to the government with the primary purpose of raising revenue.
The Tax Justice Network refers to the four “Rs” of taxation.
Broadly, these comprise: the essential nature of revenue collection by governments to meet their obligations and maximise resources for society; redistribution of resources to combat inequality; repricing of public ills, such as carbon emissions; and effective political representation necessary to ensure accountability of the state to its citizens.
Taxation, therefore, provides the basis for a just society in which we can all live and thrive.
It is interesting to note that income tax was introduced by William Pitt the Younger in 1799 to fund the Napoleonic Wars. It was subsequently repealed and then reintroduced in 1842 by Sir Robert Peel to deal with a large public deficit.
Perhaps it should not be a surprise that the pandemic has prompted growing calls for a wealth tax to deal with impact of Covid-19 on our economy.
Looking to the future, as practitioners we need to cultivate consciousness around the overriding purpose of tax, particularly when advising the next generation of wealth holders who are likely to have a considerably different outlook.
Tax minimisation is no longer the default. In fact, groups of wealthy citizens are self-organising through campaign groups specifically to highlight the value of tax in society.
The Patriotic Millionaires, of whom Abigail Disney is perhaps the most renowned, is a group of ultra-wealthy individuals, business leaders and investors who are concerned about rising economic inequality and are calling for government to levy higher taxes on them.
The organisation is growing its presence in the UK and Europe. Similarly, Millionaires for Humanity is a new international network of multimillionaires advocating for a wealth tax to support a fair and green recovery beyond Covid-19.
Increasingly, we will find ourselves with clients who aren’t looking for tax mitigation and may even be advocating for wealth taxes and progressive tax reform.
Tax constitutes one of the fundamental elements of the social contract between the state and its citizens.
When the discussions around tax overlook this basic framework, we need to reconsider the practices and norms to which we have become accustomed and ground ourselves in a new conversation about tax.