Tax on wealth suggested

EdGasketTheSecond

The following article suggests a 'wealth tax' as a means to pay for covid. I hope we don't go down that road but there are obvious pitfalls like someone with a valuable house but no cash to pay the tax; how do you value defined benefit vs money-purchase pensions?

With zero interest rates for savers and debasement of our currency it does seem as though the government is on a socialist agenda to wipe out any personal wealth, any incentive to to behave responsibly, and reward prolific spenders and borrowers.

https://www.bbc.co.uk/news/business-55236851

Filo25

Hmmm, checks personal finances, I would take it over getting rid of pension tax relief at the marginal rate of income 

The_Green_Hornet

The same thing was proposed following the global financial crash. It didn't happen then and I doubt it will happen now.

eskbanker

EdGasketTheSecond said:

The following article suggests a 'wealth tax' as a means to pay for covid. I hope we don't go down that road but there are obvious pitfalls like someone with a valuable house but no cash to pay the tax; how do you value defined benefit vs money-purchase pensions?

There are already well-established principles available for valuing pensions, but if you're looking for detail about these proposals rather than the BBC's summarised take on them, the full 126 page report is accessible at https://www.ukwealth.tax/s/A-Wealth-Tax-For-The-UK.pdf

Edit: DB pensions are to be valued via CETV according to section 4.2.3 of the report, among proposals for all the other valuation challenges:

For pensions, the process for defined contribution (DC) schemes would be similar to other financial assets. Defined benefit (DB) schemes are more complex, because unlike a DC scheme there is no fund assigned to the individual. However, there are nevertheless several existing purposes for which DB scheme providers must determine the current value of an individual’s future pension entitlements. The most appropriate measure for the purposes of a wealth tax would be the Cash Equivalent Transfer Value (CETV), following the guidance that is already published by the Pensions Regulator for the purpose of transfers between pension schemes. This approach has the important benefit of ensuring, so far as possible, horizontal equity between holders of DC and DB pensions.

The issue of lack of liquidity for settlement is discussed at length in section 4.2.4 - no doubt there will be matters that haven't been considered but liquidity and pension valuation clearly have!

thegentleway

"A 1% per year tax rate could be imposed for five years on wealth of more than £1m per two-person household, the Wealth Commission said.

That would be equivalent to raising VAT by 6p or the basic rate of income tax by 9p for the same period."

Sounds great to me. I don't buy your what if you have a million pound house but no cash hypothetical scenario or the even more ridiculous what if you have a million pound pension but no cash. If you have a million pounds in wealth you can very easily afford to pay 1% tax increase. It would make no noticeable difference to your life. My partner and I don't have a million in wealth but it would be extremely easy for us to pay an extra 1% in tax and we would be very happy to do it. It's extremely good value for money.

Another_Saver

Wealth to gdp ratio has increased because of boomers. As boomers retire they will impose the greatest social and health burdens of any population ever. I don't see how people expect to pay for that without shifting the tax burden onto wealth as well as economic activity.

Financial transactions tax of 1bps would mechanically yield ~£25bn pa (according to BoE transactiona total around £250tn pa) 

We already have the bank levy, of that's feasible so too is a transaction tax

Replace council tax with a 1% land value tax would mechanically increase the take from ~£35bn to ~£50bn
 
Just some ideas, we can debate the rights, wrongs and efficacy til the cows come home.

Old_Lifer

Suggestion of a wealth tax is something which crops-up from time to time.

Personally, I am wondering what the next Budget will hold for  Capital Gains Tax  (a reduction in the allowance ? )  and for ISAs  (a reduction in the  annual allowance,  a lifetime cap on the amount that can be contributed  or a cap on the amount that can be held in an ISA ? ).

Mickey666

Wealth taxes are always popular because the majority of people are not affected.  Is that democracy or the tyranny of the majority? That BBC article also states that the top 1% of earners pay 29% of all income tax and the top 5% pay 50% of all income tax.   I guess the question is how progressive can we be while still being ‘fair’.  Indeed, what is ‘fair’ when it comes to taxation. Why is it ‘fair’ to pay a higher proportion of tax the more you earn when you would already pay more the more you earn anyway?  I suspect the answer is that it’s judged ‘fair’ to make other people pay more tax if it doesn’t affect you personally.
Anyway, how will a wealth tax actually work?  Annual returns of everyone’s net worth?  Plenty of ways to ‘adjust’ that I’d have thought - even HMRC once embarked on a tax saving scheme by leasing all their buildings from an offshore company!
Taxing income seems fair enough to me - you’ve got it so can afford to pay it.  Increase income tax rates, but also increase personal allowances to reduce the tax burden for those on low incomes.
Taxing wealth punishes the prudent over the feckless spenders.

Another_Saver

Mickey666 said:

Wealth taxes are always popular because the majority of people are not affected.  Is that democracy or the tyranny of the majority? That BBC article also states that the top 1% of earners pay 29% of all income tax and the top 5% pay 50% of all income tax.   I guess the question is how progressive can we be while still being ‘fair’.  Indeed, what is ‘fair’ when it comes to taxation. Why is it ‘fair’ to pay a higher proportion of tax the more you earn when you would already pay more the more you earn anyway?  I suspect the answer is that it’s judged ‘fair’ to make other people pay more tax if it doesn’t affect you personally.
Anyway, how will a wealth tax actually work?  Annual returns of everyone’s net worth?  Plenty of ways to ‘adjust’ that I’d have thought - even HMRC once embarked on a tax saving scheme by leasing all their buildings from an offshore company!
Taxing income seems fair enough to me - you’ve got it so can afford to pay it.  Increase income tax rates, but also increase personal allowances to reduce the tax burden for those on low incomes.
Taxing wealth punishes the prudent over the feckless spenders.

You're straw manning that wealth is a product or prudence rather than luck and vice versa.

jimjames

thegentleway said:

Sounds great to me. I don't buy your what if you have a million pound house but no cash hypothetical scenario or the even more ridiculous what if you have a million pound pension but no cash. If you have a million pounds in wealth you can very easily afford to pay 1% tax increase. It would make no noticeable difference to your life. My partner and I don't have a million in wealth but it would be extremely easy for us to pay an extra 1% in tax and we would be very happy to do it. It's extremely good value for money.

How would you propose someone with a pension and house valued over £1m but little income would pay it then? Pension isn't accessible until you start drawing it and even then a DB one is only annual income.

Another_Saver

You could implement a financial assets levy like the bank levy payable by the asset manager rather than directly by the ultimate beneficiary. I think 1% pa would be unreasonable, maybe 1bps. Financial assets don't "take up" anything or cost anything to the government other shn the FCA and FSCS, whereas owning land does entail real costs so to that end I think 1% of land is more reasonable rather than our regressive council tax system.