A £260 billion Wealth Tax for the UK?

The Wealth Tax Commission published its final report on 9 December 2020. It can be found here https://www.ukwealth.tax/.

The Report recommends consideration of a "one-off" wealth tax – ostensibly to contribute towards the cost of dealing with COVID-19. In essence, the "one-off" wealth tax would involve taxing each individual resident in the UK at a flat rate of tax on all of their net personal wealth over a certain amount. The report focusses on a flat rate of 5% over £500,000, payable over five years, which would raise £260 billion. To understand the impact of such a tax, that figure might be contrasted with Inheritance Tax, which raises about £5 billion per annum.

The structure of the tax focussed on in the Report envisages:-

• The tax would be assessed on the open market value of assets on a given date (which would either be the date the policy is announced or a date sometime before that).
• The tax would be paid over five years – i.e. effectively 1% per annum for five years.
• Every individual resident in the UK for tax purposes (whether or not domiciled in the UK) would be assessed – and this would include individuals resident in years before the introduction of the tax.
• The tax would not have exemptions nor reliefs – except for personal items with a market value of less than £3,000. Private residences and pensions are both included.
• Assets held in trusts would be taxed by reference to the residence of the settlor of the trust, albeit liability would fall upon the trust fund.

The Report does not recommend an annual wealth tax, but does encourage reform of existing capital taxes (Inheritance Tax, Capital Gains Tax etc).

Should you plan now to avoid the impact of the tax? First, of course, this is a recommendation from a Commission, and it is not government policy. On the face of it, for those who would be liable to the tax, giving assets away now to a person who has wealth under the chosen limit may help, but that approach is subject to many and various qualifications, not least the date that is chosen for the tax to apply, proposed rules to look through gifts to minor children and what other tax consequences such a gift would have, which could under current rules be considerable.

Quite apart from this radical possibility, this may be a vital time for considering estate planning more generally, with which your usual Brodies contact is perfectly placed to assist.