Press Release of the Day – 15th July
Wealth tax almost certain
As the debate around how the economy will recover following the pandemic and whether or not the UK should introduce a new wealth tax, please find below comment from my barrister and international tax adviser client explaining how a wealth tax is inevitable and how it could work in practice. Please feel free to include in any future pieces you’re planning on writing.
Leon Fernando Del Canto, barrister at Del Canto Chambers, says: “With a desperate need for increased revenue but reduced options for raising this, the government will almost certainly be looking hard at the subject of taxation of wealth. So long as it remains proportionate and affordable, it is hard to find any real justification for not introducing it in the near future. With the devastation to the economy and personal finances in the wake of the pandemic, public support for a wealth tax is certain to increase.
“The government will be cautious of imposing any additional tax burden on businesses that are already struggling to survive. Asking the public at large to pay more while the wealthiest can hold on to their fortunes without additional contribution will be hugely unpopular. The obvious solution is the creation of a wealth tax to raise government funds without causing a crisis.
“Numerous countries impose a wealth tax on their citizens, including several in Europe. Spain imposes a 0.2 per cent tax on net assets over €700,000, rising to 2.5 per cent on fortunes over €10.7 million, depending on the region. The wealth tax in France raises around €2 billion per year, paid by the 150,000 wealthiest households. It is charged to residents on their worldwide real estate holdings valued at over €1.3 million, with the first €800,000 tax-free. The rate is 0.5 – 1.5 per cent per annum. Other European countries currently charging wealth tax include Portugal, Italy, Belgium, the Netherlands, Norway and Switzerland.
“The government will no doubt look at successful wealth tax regimes in these other countries when designing a UK version. In creating a tax that is fair and reasonable, they will need to have regard to the following:
- Taxation should apply to net assets only, i.e. total assets minus total debts;
- Trading assets should be excluded;
- There should be an exemption for the first portion of wealth, with the amount to be decided upon, and this should include the value of the primary residence;
- Regional differences should be taken into account, with adjustments where necessary;
- The regime should make allowance for those who are asset-rich but cash-poor to prevent the need for sale of assets.
“It would be for the government to decide whether to include pensions, which are not accessible funds, in the asset calculation. ISAs and second homes could be caught by any new legislation, with the risk of discouraging saving and forcing property sales.
“For wealthy individuals considering relocating to the UK before Brexit, a range of options exists for the government when looking at whether to impose wealth tax on these individuals; for example, it could be charged on arrival or alternatively after a set period of residence. There could also be a possibility of charging a wealth tax on those who live elsewhere but have UK assets. When it comes to leaving the UK, the government could consider an exit tax or continue to impose wealth tax for a number of years after a resident leaves.”
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