Pension and property wealth tax plans handed to Treasury

One-off tax one of several ideas to repay the country’s coronavirus bill.

A one-off wealth tax on assets such as pensions and property could become reality under plans submitted to the Treasury by tax experts today.

The government has spent £280 billion on measures to support the economy during the coronavirus crisis, such as lending to businesses and job support schemes.

But this needs to be repaid eventually, and Chancellor Rishi Sunak has previously hinted at tax rises to fund this.

A group of tax experts and academics formed the Wealth Tax Commission earlier this year and have said that rather than raising income tax, VAT or corporation tax, implementing a one-off charge on assets would be fairer and “economically efficient”.

The commission has proposed a wealth tax payable on all individual assets worth more than £500,000 in a report released today.

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If it was charged at 1% a year for five years, the report said, this would raise £260 billion or £80 billion with a threshold of £2 million.

The tax would be paid by individuals whose total wealth after mortgages and other debts, and after splitting the value of shared assets such as a jointly-owned family home, exceeded the tax.

The commission suggests that any wealth tax on retirement wealth should come out of the pension lump sum for those not yet at state pension age. 

It also suggests extra time could be given to pay for those who need to sell assets to fund the tax.

The report says: “Since it is based on wealth at a past point in time, a one-off wealth tax does not distort behaviour. 

“In contrast, income taxes on employment and self-employment reduce incentives to work, capital taxes reduce investment, corporation taxes encourage companies to reduce UK taxable profits.”

Lisa Johnstone, director of financial planners VWM Wealth, says there is a growing spotlight on how the government taxes various types of wealth.

She says: “Higher income tax rates often encourage wealthy people to draw capital instead of income, which reduces the tax take overall. 

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“We saw some of this when there was a 50% top income tax rate. 

“It looks good in the newspaper headlines but its effectiveness is overstated and can be a disincentive to attracting overseas investment and companies to be based here.”

Johnstone adds that the main concern for wealthy individuals may be that a temporary tax becomes permanent.

Many other plans for a form of wealth tax to repay the country’s coronavirus bill have all been handed to the Treasury this year from a range of think tanks.