RSM has criticised the Wealth Tax Commission’s final report, “A Wealth Tax for the UK” saying it is too blunt an instrument, is unfair to taxpayers and a different approach is needed.
The report proposes that a one-off wealth tax of 1 per cent, payable on all individual wealth over £500,000 of net assets (£1m for couples) could help repay the enormous Government debt caused by the pandemic. It also stipulates in their objectives that any wealth tax introduced would need to raise substantial revenue, be efficient and fair, be difficult to avoid and be better than any other alternatives.
Gary Heynes, private client partner at RSM said: ‘To make Wealth Tax fair, more complexity is needed, as the current proposed approach ignores the significant differences that exist in how wealth has been acquired, as well as what taxes may have already been paid. For example, those who have invested their money over a number of years may have paid significant annual taxes, while those whose wealth is in a home may not have paid any tax on its potentially significant increase in value over the years. Should someone who has worked hard to build a business, taken the risks of entrepreneurship, employed people and paid a variety of taxes each year and on any exit have to pay the same level of wealth tax as those passive investors? These huge differences between the ways wealth has been generated, how much has been generated, and what tax has been paid as a result, needs careful consideration.’
The approach also raises many further questions about other people who could be liable for wealth tax. Those who have chosen to hold assets amongst family members would each have lower wealth than those who have not shared asset ownership and would therefore potentially escape the tax. Those who have access to assets in trust, but there is no one person identified as the owner, could also potentially fall outside of the tax.
If the assets and the trustees are outside the UK, this also raises important considerations, such as what obligation would they have to pay any tax, even if the rules sought to tax trusts? There are individuals who are temporarily in the UK for a few years but who are not domiciled here. Would they have to pay tax on their overseas assets?
Gary Heynes continues: ‘Applying such a blunt rule breaks the core fairness rule, yet adding complexity would make this less efficient. The top 1 per cent of earners in the UK, who are also the ones most likely to pay wealth tax, already pay 30 per cent of the income tax take. Is it fair to layer another tax on the same group?’
A further concern is that many may plan around this, possibly leaving the country in advance of a wealth tax date. If a past date is chosen, this would set a worrying precedent around retrospective taxation for those thinking about bringing wealth into the UK in future.
Gary Heynes concluded: ‘It’s clearly going to be a difficult year ahead, as plans for tax raising to repay the mountain of debt are considered. Do we really need to raise substantial amounts of tax so quickly or could the debt repayment be spread over a longer period. A wealth tax, because of the need for complexity to make it fair, is not the answer. There are other solutions which could be more targeted in its approach which should be considered in preference to taxing wealth in such a blunt way.’