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Could we see a one-off wealth tax?

9th December 2020

An independent commission of academics and tax specialists has suggested a one-off wealth tax of 5% on assets above £500,000 (including pensions and houses but excluding mortgages) could generate over £260bn for the Treasury.

That is equivalent to raising VAT by 6p or the basic rate of income tax by 9p, it said.

The Wealth Tax Commission’s report suggests that around 8 million UK residents (including non-domiciles) may be caught by the tax.

Those who are liable would be allowed to pay the tax in five equal instalments over five years, based on the market value of their assets at a specific date.  Spouses and civil partners could pool their allowances, meaning only households with more than £1m in net wealth would be affected.

Alternatively, the report suggests setting the threshold at £2m per person or £4m per household, which could raise £80bn over five years and affect 626,000 people.

Individuals with property but little cash could be given more time to pay, as this could be problematic if people are forced to liquidate assets.

The report was written by researchers at Warwick university and the London School of Economics, with funding from the Economic and Social Research Council.

Its publication comes at a time when the Treasury is considering how and when it may start to recoup some of the nearly £300bn of financial support it is handing out to counteract the impact of the pandemic.

The Office for Budget Responsibility recently reported that Covid would lead to an 11.3% contraction in the UK economy, the largest reduction in over 300 years.

A one-off wealth tax would be more effective at raising revenue than an annual tax, according to the report, as this would reduce the incidence of avoidance. Though it is not clear how the government would counter wealth leaving the UK to escape such a tax.

Chancellor Rishi Sunak has refused to be drawn on any tax changes ahead of his Budget next March.

The Office of Tax Simplification (OTS) recently published a review of the Capital Gains Tax regime, commissioned by the Chancellor, which makes suggestions for radical changes to the tax, including scrapping reliefs and aligning rates with income tax.

A Treasury spokesperson told the BBC that the current progressive tax system means the top 1% of income taxpayers are projected to pay over 29% of all income tax, and the top 5% over 50% of all income tax in 2019-20.

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