BY refusing to commit to implementing a wealth tax on the super-rich, Labour shadow chancellor has inadvertently reopened the conversation on how the wealthy could be taxed more to fund public spending.
A report published in 2020 by the Wealth Tax Commission recommended a one-off tax on net worth, which the authors said could raise anything between £43 billion to £387bn.
But how could a Government go about implementing one – and how are the wealthy taxed now?
Current tax arrangements
At present, people are taxed on wealth in a variety of ways, including income tax, capital gains tax, stamp duty and inheritance tax.
The problem for the taxman when it comes to raiding the super-wealthy is that these taxes only come into play when things like properties or shares are bought and sold.
People can therefore sit on substantial personal fortunes to which the authorities have no access until they die and some can be funnelled into the public purse through death duties.
Another aspect of this is passive income, where people can amass personal wealth without working, the best example of which is money which comes through shares and investments.
Passive income, like that generated by selling shares or renting property, is taxed but critics say it is not enough.
Professor Christine Cooper of Edinburgh University’s Business School said work she for John McDonnell while he was shadow chancellor exposed how much money was lost to the Exchequer annually because HMRC failed to adequately monitor share sales, hundreds of thousands of which are made every day.
And while professional landlords must pay National Insurance – property owners who do make money from renting out just one property do not.
Prof Cooper added: “There are some people who are incredibly rich, they don’t work, they’ve got very valuable property, they live on investment income, so if you didn’t do a wealth tax, you would be missing those people.”
Other loopholes in taxation mean that shares held in an individual savings account or a personal equity plan are also exempt as well as gains made from trading UK government gilts or premium bonds.
How to implement a wealth tax
Death duties would be the easiest way of implementing a wealth tax, according to Prof Copper, who said inheritance tax avoids issues of raiding the assets of people with theoretical wealth but little cash in the bank.
She told The National part of the problem with taxing wealth was that many people are wealthy on paper because of rising property prices, particularly in places such as London where a bog-standard family home can be worth eye-wateringly high sums.
“Somebody could have a £1.5 million house, they may not have much money in the bank and they couldn’t afford to pay the [wealth] tax without selling the house,” she said.
“But if it’s an elderly person, would you want to make them sell their house?”
This is theoretical wealth, which currently isn’t taxed by the UK Government until the point of sale or when a person dies and their estate is charged inheritance tax.
According to the Wealth Tax Commission’s 2020 report it would be preferable to implement a one-off wealth tax, which assessed individuals on their net worth and taxed them accordingly for a period of five years.
Their report said that the Government shouldn’t seek to hike taxes in other ways, like increasing income tax or VAT because this could disincentivise people from working or spending money, which could harm the economy.
