The recent sight of the first Covid-19 vaccines being administered in the UK and US has finally allowed us to look towards a future not dominated by Coronavirus. The vaccines, whilst perhaps not without complications, do at least offer the possibility of allowing us a life where we can once again contemplate travel for leisure and socialising with family and friends without restrictions.
As opposition to the loss of freedom and liberties has seen growing protests, as threats of further tightening of the current restrictions are announced in Europe, there is however a cautious optimism that we may not have to settle for the ‘new normal’.
It is for debate whether our lives will be changed indefinitely. For those who have lost loved ones to Covid, this is undoubtedly the case. Whilst Covid has destroyed so many lives, its legacy will continue for many years, not least in terms of the toll it has taken on the economies of the world.
As governments have rushed to fill the economic void resulting from lockdowns through expenditure; rising unemployment, homelessness, corporate bankruptcies and the inevitable reduction in tax revenues will impact budgets for years to come. Given the rush by western governments into high levels of state aid, the question that is perhaps only just beginning to be fully examined is how are we going to pay for this?
As politicians including Biden and Trudeau talk of ‘the great reset’ echoed by Johnson’s ‘build back better’, whether this is some globalist conspiracy or simply a move towards greener policies in keeping with Biden’s election campaign, it is clear that the world we knew prior to Covid will never be the same again.
Increasing government intervention in the economy may not be a short-term problem, with interest rates likely to remain low for the foreseeable future, high levels of government debt are perhaps not the burden they have been historically. But continuing budget deficits only add to the stockpile and this can become unsustainable in the longer term. As the dust settles, discussions are turning to potential new sources of government revenue to reduce the deficit.
The Argentine government has already shown its hand with the announcement of a new wealth tax, where a one-off levy at rates up to 5.25% was passed into law on 4 December 2020. Of course, one-off or temporary taxes have a habit of becoming permanent once a government starts relying on that new source of revenue.
But could the United Kingdom follow suit and also introduce the previously unthinkable, a tax on wealth. It was certainly an idea previously talked about by former opposition leader Jeremy Corbyn’s socialist Labour Party. Under normal circumstances his electoral defeat in 2019 may have led to the idea quietly fading away.
Yet under a centre right Conservative government, with a large parliamentary majority, once again the spectre of a wealth tax is coming into mainstream thinking following publication of the Wealth Tax Commission’s recent report.
Given the complexity of imposing a wealth tax, and the high administrative costs of collecting it, which had seen the number of OECD members imposing such taxes reduce in recent years, the report favoured a one-off wealth tax over an ongoing annual tax.
Alternative tax raising measures the UK could also consider include an increase in the imposition of capital gains tax, to narrow the favourable differential in rates it currently enjoys in comparison with income tax, or further property taxes and attacks on pension funds which have proved popular with chancellors since the time of the Blair government.
Those owning properties in the UK, or with large pension funds, could also suffer should the wealth tax concept develop, particularly as the report authors have suggested it could be imposed on those with assets as little as £500,000, including main homes, pension funds, businesses, farms and in some cases trusts.
The report suggests that, to minimise opportunities for avoidance, any one-off wealth tax should be introduced without prior warning, or even retroactively, in order that taxpayers do not have any opportunity to take evasive action, or to leave the UK in advance. In reality such tax could extend to those who have already left the UK but were resident for four of the previous seven years.
The tax would also be levied on UK real estate assets of non-resident individuals or trustees, even if owned indirectly through companies. Equally those individuals resident in the UK, but not domiciled, would also be affected. Controlling interests in UK companies might also be within the scope of tax for non-residents.
At the present time it seems unlikely that such a drastic move would be implemented by the UK. Indeed, the report itself does not recommend imposition of a wealth tax. With the post Brexit era also dawning in 2021, the message such a move may send out to potential investors in, and wealthy residents of, the UK could be damaging.
The Chancellor, Rishi Sunak, has been quoted as saying that there is not now, and never will be, a time for a wealth tax. It is therefore very unlikely that the current Government will introduce a wealth tax in any form, let alone one as dramatic as that proposed in the Wealth Tax Commission’s report. We will therefore watch closely what alternative tax measures the government may look to impose in dealing with its deficit.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Probus Group to discuss these matters in the context of your particular circumstance. Probus Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.