Rishi Sunak says ‘all support will be reviewed in budget’
Rishi Sunak may be tempted to introduce a wealth tax come March as recent analysis laid out it’s practicality as wealth inequality widens. The Chancellor has detailed coronavirus spending will need to be covered at some point and various taxes are expected to be targeted for this.
Sophie Dworetzsky, a Tax Partner at Charles Russell Speechlys, commented on the Wealth Tax Commission’s work: “As mentioned in the report published in December, the proposed one-off five percent wealth tax would be applied to UK residents in possession of assets above £500,000, levied at five percent.
“However, what is particularly unusual and surprising, is the arguably retrospective nature of this proposition.
“A wealth tax would be applied to all UK residents who fit the outlined description and have lived here within the past seven years.
“This condition would mean that people who do not live in the UK when the tax is introduced may still be liable to pay this tax on their worldwide assets.
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“This is a potentially unfair development.”
Sophie went on to explain how difficult the introduction of a wealth tax could prove to be: “A further potential difficulty to consider in the proposal is the prevalence of individuals who are asset rich but cash poor.
“This is likely to be the case for individuals in possession of large farms or valuable properties, but do not have access to significant income or cash.
“There are also concerns around how this tax will be implemented, as a wealth tax conceptually cannot be integrated into the existing inheritance, income or capital gains tax rules, instead a wholesale review of the capital taxes regime would be needed.
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“Given the scale and nature of the task, this may well be unrealistic, and it is critical for the perception of the UK that further complex taxes are not simply added on to an already complex and somewhat piecemeal set of rules.
“Alternatively, there are other taxation measures which have been suggested as revenue raising measures.
“Options debated include the increase of Corporation Tax, increasing National Insurance Contributions for the self-employed, or even reducing the current pension release rate to encourage people to access their pension contributions sooner.
“In all cases, it will be critical to balance revenue raising with losing wealth and entrepreneurship in the UK.”
In the Chancellor’s 2020 spending review, delivered in late November, Rishi acknowledged the fiscal difficulty the pandemic has created: “The economic impact of coronavirus, and the action we’ve taken in response, means there has been a significant but necessary increase in our borrowing and debt.
“The UK is forecast to borrow a total of £394 billion this year, equivalent to 19 percent of GDP.
“The highest recorded level of borrowing in our peacetime history.
“Borrowing falls to £164 billion next year, £105 billion in 2022-23, then remains at around £100 billion, four percent of GDP, for the remainder of the forecast.
“Underlying debt – after removing the temporary effect of the Bank of England’s asset purchases – is forecast to be 91.9 percent of GDP this year.
“And due to elevated borrowing levels, and a forecast persistent deficit, underlying debt is forecast to continue rising in every year, reaching 97.5 percent of GDP in 2025-26.
“High as these costs are, the costs of inaction would have been far higher.”
Rishi concluded with a warning on what difficult realities may be on the horizon: “But this situation is clearly unsustainable over the medium term.
“We could only act in the way we have because we came into this crisis with strong public finances.
“And we have a responsibility, once the economy recovers, to return to a sustainable fiscal position.”
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