The UK currently doesn't have a specific wealth tax. Plans to introduce one (as an exceptional response to the Covid-19 pandemic) were analysed by the Wealth Tax Commission back in 2020. However, after its report was published, the government confirmed it had no plans to introduce any wealth tax. Prior to this, no in-depth studies of a wealth tax in the UK had taken place for nearly 50 years, but the TUC is hoping to reopen the conversation.
What is a wealth tax?
The Wealth Commission has previously described a wealth tax as a broad-based tax on the ownership of net wealth (i.e. a person’s assets minus their debts). This means a tax not only on a specific type of asset (for example property) but a potential tax on most (or all) types of assets.
What assets would the tax be on?
Total net wealth in the UK comprises of four main components which are:
- net property (value of residences minus mortgage debt)
- physical wealth (for example household contents and vehicles)
- private pensions
- net financial (savings or investments minus financial liabilities)
The TUC’s analysis didn't extend to pension funds or pension income. However, the TUC have said that further debate would be needed on what type of wealth is included in this type of tax.
What could a wealth tax look like?
Individuals would likely be taxed once based on the value of wealth they owned at a particular date.
The TUC have put forward a one-off wealth tax with marginal rates on wealth and assets higher than each threshold:
- a rate of 1.7% on assets over £3 million
- rising to 2.1% on assets over £5 million
- rising to 3.5% on assets over £10 million
To be affected, individuals would need to be in the top 0.3% wealthiest of the UK population. The TUC have given the following examples of how this charge would apply in practice:
- Individuals with £3 million would pay no tax
- Individuals with £4 million would pay tax on £1 million of their wealth (paying £17,000)
- Individuals with £9 million would pay tax on £6 million of their wealth (paying £118,000)
Is it going to happen?
It's unknown whether a wealth tax will be implemented in the UK in the future, as this will depend upon the outcome of future elections and the differing political parties’ views. However, what is clear is that the TUC have presented their ideas in a bid to kickstart a conversation surrounding taxing wealth, so the topic is certainly up for discussion and something to keep an eye out for...
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