Austerity, Wealth Tax or Stealth Tax?

The report last year of the Wealth Tax Commission, ‘A wealth tax for the UK’, (the ‘Report’) has sparked widespread interest and, for some, considerable worry.  I strongly recommend reading the Report, which you will find at, for several reasons. 

  • It is authoritative.  Emma Chamberlain, who has contributed tax input, is without doubt one of the finest tax brains of our generation.  The Report draws on wide experience of wealth taxes elsewhere. 
  • Its 126 pages present a balanced view of what might be possible. No summary can really do it justice, though I will now try. 
  • It stresses (time and time again) that the rates used are for illustration only.

This is my personal view of the proposals and contains many assumptions that people may disagree with.

    The Report is authoritative.  Emma Chamberlain, who has contributed tax input, is without doubt one of the finest tax brains of our generation. 

    Will it happen?

    Well, not any time soon, it seems. The combination of Brexit and the pandemic has run this government short of money.  Broadly, there are three ways out of the problem.  Each has its advocates.

    • Austerity. Having helped the people most severely affected with grants and loans, and having probably suffered some abusive claims for help, the Government could ‘turn off the tap’ of new money and gradually cut its outgoings.  That is what many businesses have been forced to do.  For example, state pensions, other state benefits and public sector salaries could be frozen.  Support for the arts and foreign aid budgets could be cut back.  Church leaders argue against taking this course.
    • Taxation, especially of the ‘rich’.  The Duke of Westminster once drily observed that such taxation is supported by those who imagine that the tax would start at one pound more than they personally possess.  This is the subject of this article.
    • Borrowing for an extended period.  Interest rates are currently slightly lower than the annual rate of inflation, so the lender/investor will never truly be repaid in full.  That is what I mean by ‘stealth tax’ in the title to this article.  In effect, since savings are widely held by the elderly who seek low-risk investments, it is they who are most likely to suffer.  This has been well described as ‘robbing old people slowly’.

    We can speculate, but some things are fairly certain.  We have in Rishi Sunak a brilliant, strong, young man who is willing to work 18 hours a day for his country.  However, we have in Boris Johnson a man not known for his grasp of detail and who now seems less secure than when first elected.  Equally, we know, from their decisions during the pandemic, that in general terms this government is reluctant to ‘do the right thing’ where that might upset its strongest or most vocal supporters or, it must be said, its major donors.  As you will see in my article on this website ‘So what about CGT: has there been a reprieve?’ the Government seems reluctant to take even small steps that might help, for fear of upsetting those prejudiced by changes.

      A fudge

      Based on that, many commentators think, and I agree, that the most likely outcome of the present financial crisis is not to adopt the proposals in the Report.  It is more likely that we shall see a combination of mild austerity, prolonged reliance on long-term borrowing, tweaking of existing tax rates and the introduction of a watered-down version of the wealth tax (‘WT’) proposals set out in the Report.

        It is more likely that we shall see a combination of mild austerity, prolonged reliance on long-term borrowing, tweaking of existing tax rates and the introduction of a watered-down version of the wealth tax (‘WT’) proposals set out in the Report.

          A key element in discussing a WT is the threshold, the point above which the WT would apply.  If the threshold is set low, for example at £250,000, the WT might affect 15,537,000 UK taxpayers and raise £390 billion.  Naturally, to raise a given sum, the actual tax rate might be low if the threshold is low because so many people are contributing.  If the threshold were to be set higher, fewer of us would need to worry, but those affected would suffer higher tax rates.  This is the balancing act that must be performed by politicians.

          One of many examples given in the Report is that a one-off WT, set at 5% on individual wealth exceeding £2 million, would raise £80 billion.  That would be on all assets, including pension rights and a share of the family home.  A couple with combined net wealth of less than £4 million would pay nothing.  At a threshold of £2 million, 626,000 people in the UK would be affected. 

          Most helpfully, the Report shows how else the Government might find the money, by increasing income tax, VAT, Corporation Tax and even Capital Gains Tax.

          Frequently asked questions

          This article is for people who are worried about tax and for their advisers.  At the end I have assembled FAQs and the answers that emerge from the Report.

          Summary of the Report

          In this summary I have deliberately omitted some aspects of the Report.  I do not therefore comment in detail on the design arguments.  I have omitted any references to the foreign element which, as always in tax, causes complications.  I have, however, tried to set out the consequences proposed for UK-based family trusts.

          What is ‘net wealth’?

          The Report defines this as ‘a person’s assets minus their debts’: see paragraph 4.2.2.  The Report strongly advises against allowing any exemptions, so their definition includes the family home, pension rights even before pension age is reached, and personal possessions as well as savings and investments.

          Would this really be a one-off?

          The Report recommends a one-off tax, for very good reasons.  It would be harder to get out of and might be cheaper for all concerned.  It would be economically efficient, in that it would not distort behaviour.  This is because an essential design feature is what I call the ‘Doomsday’, by which I mean the date used to calculate the tax.  Let us imagine that the Government decided to introduce a WT on 15th May 2022.  (That is actually most unlikely, given the time needed to design the tax.)  The WT could specify 1st January 2022 as Doomsday. 

          By the time we all heard of the new tax, it would be far too late to emigrate; or finally to give capital to the younger generation; or to create fanciful tax schemes such as imaginary debts that reduced our wealth.  It would, in sporting terms, be rather like taking a penalty.  It would also be too late for us to change the way we live, so economic life might continue as before, although some money would have been taken out of circulation.

          Would you trust any government to treat it as a one-off, once all the assessment infrastructure was in place?  Despite the really good arguments in the Report in favour of a one-off tax, I worry that the government might ‘chicken out’ and instead go for an annual WT at a lower headline rate.  In sporting terms this might begin to look like a five-day Test Match.  With an annual WT it becomes easier to plan, so that gradually your assets ‘disappear’.  There is evidence from other countries with an annual WT that pressure groups steadily lobby for special exemption, such as we have in the UK for farmland for IHT.  Exemptions make tax more complicated and reduce effectiveness.


          What would the WT look like?

          The Report proposes that:

              • WT be levied on the individual, not the family;
              • WT should include all property, including pension rights and the family home;
              • Assets be taxed at open market value, with houses being valued initially by the Valuation Office Agency on a fairly standard basis, with a right of appeal; and with ‘hard to value’ items under special rules;
              • People who are ‘asset-rich-cash-poor’ should have time to pay (though this would not apply to an annual WT)
              • WT would measure capital value, without reference to the income it generates.

          What is wrong with an annual WT, as opposed to a one-off WT?

          Apart from the ability to ‘dodge’ the tax by changes in behaviour, the problems are:

          • Regular reassessments of wealth and valuations of assets;
          • Permanent addition to our already massive tax code;
          • Distortion of taxpayer behaviour;
          • Ongoing work for tax collectors and tax advisers.

          The Report in section 5 concludes that it would be better to reform existing taxes.  I respectfully and wholeheartedly agree.  Some political issues are discussed in FAQs.

          The threshold

          Rather like recent discussions over Brexit, this is one of the fundamental pressure points in considering any WT (and indeed whether any Conservative Government would have the courage to introduce one).  A one-off 5% flat rate tax:

          • on total wealth above £250,000 per person would affect 15,537,000 taxpayers and raise at least £390 billion;  
          • on total wealth above £1,000,000 per person would affect 3,004,000 taxpayers and raise £147 billion; and   
          • on total wealth above £2,000,000 per person would affect 625,000 taxpayers and raise £81 billion.

          Looked at another way, a one-off tax to raise £250 billion:

          • from people with wealth over £250,000 would require a flat rate tax of 3.2%;
          • from people with wealth over £500,000 would require a flat rate tax of 4.8%; and
          • from people with wealth over £1,000,000 would require a flat rate tax of 8.5%.

          The rate of tax could be progressive.  Paragraph 4.1.3 of the Report illustrates, in Table 2, how £250 billion might be raised using various rates.  This is important: an essential feature of the Report is that it does the Government’s homework for them, by showing what could be done, leaving ministers to decide what (if anything) is politically expedient. 

          A one-off 5% flat rate tax on total wealth above £2,000,000 per person would affect 625,000 taxpayers and raise £81 billion.

          The cost of raising the tax is another factor in fixing the threshold: see below.

          The process of collecting a WT: the filing process

          The Report proposes a simple design so that people need not get professional help, though it recognises that there would be costs.  The form should be as simple as is necessary to collect the information.  Wealthier people might have to answer more questions.  It should be simpler than the forms used for IHT on death.  Some fields could be ‘pre-populated’, ie filled in already on the online form, where HMRC already knew values, as for the house; or had received them direct, as from a pension provider. 

          Given the large amounts at stake, HMRC would need more officers, ‘boots on the ground’, to check returns.  They would take time to train and would be expensive to employ.

          The administrative cost of WT

          The cost to taxpayers would include valuing assets, filing the return and disputes.  Wealthier people would suffer higher costs but those costs might be lower as a percentage of that wealth.  For a one-off WT, with a threshold of:

          • £250,000, some 15,537,000 individuals would each pay about £624; but at
          • £500,000, some 8,246,000 individuals would each pay about £877; and at
          • £1,000,000, some 3,004,000 individuals would each pay about £1,454; and at
          • £2,000,000, some 626,000 individuals would each pay about £3,884.

          Without going into great detail, paragraph 4.3.4 shows in Table 5 that, with a threshold of £250,000 and a tax rate of 3.2%, the administrative cost to the government would be £2.6 billion or more than 1% of the tax raised. A higher threshold, and a higher tax rate, would be more efficient in administrative terms.

          These figures are quite a strong pointer to Government that the threshold should not be as low as £250,000.  In any case, among taxpayers so affected, liquidity is a greater problem.  All this points to a threshold for a one-off WT of at least £1,000,000.   

          These arguments are even stronger for an annual WT.  For an annual WT to raise £10 billion per year, with a threshold of:

          • £250,000, about 15,537,000 individuals would pay costs of £9,693,000 between them, equal to 97.75% of the tax in issue.
          • £500,000, about 8,246,000 individuals would pay costs of £7,226,000 between them, equal to 71.11% of the tax in issue.
          • £1,000,000, about 3,004,000 individuals would pay costs of £4,366,000 between them, equal to 43.78% of the tax in issue.
          • £2,000,000, about 626,000 individuals would pay costs of £2,432,000 between them, equal to 24.45% of the tax in issue.

          These are just the private costs: there would be substantial costs to the government.  To raise £10 billion per year, the Report calculates that a WT starting below £1 million per person does not rise enough revenue to be viable. This is a pointer towards a threshold of £2,000,000 for an annual WT.

          To raise £10 billion per year, the Report calculates that a WT starting below £1 million per person does not rise enough revenue to be viable.

          Administration issues

          An annual tax should, the Report advises, be concluded within one year to avoid compounding issues.  Any exemptions would complicate the situation and would also lead to ‘asset switching’ to place wealth where it would be taxed less heavily.  That has happened in other countries.  There is a case for integrating an annual WT into the usual Self-assessment system (‘SA’) since many wealthy people are already within SA.


          This article does not consider offshore trusts or trusts set up by non-UK domiciled or non-UK resident settlors.  If the settlor is alive and UK-resident the trust would be liable to a one-off WT on the whole fund.  The trustees would be primarily liable for the tax.

          Where the settlor can benefit from the trust, the proposal is simply to add the value of the trust to the estate of the settlor and tax at the settlor’s rates.

          Where the settlor cannot benefit, but is still alive, the fund would be subject to WT.  The exempt threshold available to the settlor might be divided among all the trusts he or she has set up, to stop any benefit from creating multiple trusts.  The Report is not specific but my reading of it is that the trust or trusts would enjoy one threshold between them, separate from any threshold enjoyed by the settlor.  That would be different from settlor-interested trusts, above, and from those trusts below which ae treated as settlor-interested.  That would also be consistent with the way that, for IHT, such trusts enjoy the whole or a part of the nil-rate band.

          Where UK-resident settlor and spouse are excluded and the beneficiaries are the minor children, add the trust fund to the estate of the settlor to fix the rate.

          Frequently asked questions: political issues

          Is all this definitely going to happen?

          No.  It is only a proposal.  As to how likely it is, see the final advice section.

          If it did happen, how soon?

          It would take time to put together but the Report suggests that a WT could be in place within 12 to 18 months of announcement, ie 12 to 18 months after Doomsday.

          Why? Who wants a WT?

          Surveys show public support for a WT, though mainly only where homes and pension funds are excluded from charge.  Support increases as the threshold increases, which cynics might well understand.  Most people, though admittedly only one-third of the sample, preferred that the tax started at £500,000 per person.  There was some concern to redress the growing gap between rich and poor.  WT was seen as preferable to a general rise in taxes to repair national finances.

          However, opponents feared that the rich would find loopholes; that a WT is double taxation; is unfair to savers; and might discourage investment and job creation.  Wealthy people might simply leave, taking their money with them.

          Would this really be a one-off?

          There have been one-off taxes in the past, such as the ‘windfall’ taxes on banks and on privatised utilities.  They are useful to sort out a crisis.  If well designed, they can be ‘efficient’ in that people do not change their behaviour, either in trying to avoid the tax (because it is too late to do so) or by spending more; or less.  It is a ‘done deal’ and the taxpayer just has to pay up and move on.

          Why not have an annual WT?

          Other countries have not found them to be a great success.  The main problems are:

          • Negative economic impacts;
          • Avoidance and evasion; and
          • Administrative costs.

          It’s just so unfair!

          The Report says that ‘a one-off WT is not intended to punish the wealthy or otherwise degrade their contribution to society.’  Tax is blind.  It is not ‘confiscation’, even if it feels like it.  It is no more retrospective, nor contrary to legitimate expectations, than any other tax.

          Raise the tax some other way!

          To raise £250 billion, some alternatives are:

          • Raise the basic rate of income tax from 20p to 29p, though some might stop working;
          • Raise NICs by 4p employee and 4p employer, though pensioners are exempt;
          • Raise VAT from 20% to 26%, which hits everyone, especially the poor;
          • Raise corporation tax, but this may not be feasible internationally.

          What about special assets? Why not use the Inheritance Tax rules?

          Exemptions from IHT such as for business assets, farms and heritage assets favour the rich and would seriously undermine any WT.  That has been shown in other countries.  It is unfair to tax people differently just because they hold different assets of the same value.

          Surely the government would not tax the family home?

          Excluding the home from WT would seriously reduce the tax yield.  For example, with a threshold for WT of £500,000 the government would lose 30% of the tax by exempting the family home.  For larger estates the percentage loss is less.  However, some other countries exclude the home, or at least part of its value, from their WT.

          Would they really tax my pension fund?

          Yes, the Report proposes taking it direct from the fund on reaching pension age.  As with the family home, excluding it would reduce tax yield.  With a WT threshold of £500,000 excluding pension would cost the government 54% of the tax yield.  Quite simply, for people of moderate means, wealth is concentrated in homes and pension funds, so that is where the government would have to look for the money to plug the hole in the public coffers.  Having said that, many countries do exclude pension rights from their WT.

          Can’t pay, won’t pay! 

          See below.

          Frequently asked questions: technical issues

          Who is most at risk?

          The over-65s make up 23% of the adult population but 39% of them have more than £500,000 to their name. 

          What assets would be covered by the new tax?

          All property, so including house, pension rights (whether or not the person has reached pension age), second homes, house contents, business goodwill, savings and investments, contract and other claims; but not the right to future state pension nor ‘human capital’ such as the chance of working in the future.  Most debts would be deductible, but not ‘crafty’ debts manufactured to reduce tax liability.

          Would I really have to get the contents of the home valued?

          No, or at least not in detail.  The Report proposes an exemption for individual items (not ‘sets’ of items) worth less than £3,000 to simplify things.  That would also apply, for example, to the value of a small claim by a taxpayer against a contractor for shoddy work, where the case had not yet gone to court.

          Would we need to get the house valued?

          No.  The Valuation Office would provide a figure, but you would be able to appeal.

          Can’t pay, won’t pay!

          ‘Can’t pay’ is a technical issue; ‘won’t pay’ is a legal or political issue.  Both a dealt with here.  We should not be confused between:

          • A one-off tax that is payable by five annual instalments; and
          • An annual tax that lasts for five years.

          The Report proposes that the one-off WT would actually be payable over 5 years to help with liquidity issues, and that the interest on the unpaid instalments should be only at a low rate.  However, that would not work for an annual tax: the debt would build up too much.

          At a threshold of £500,000 7% of taxpayers liable to pay a one-off WT would be in difficulties.  Of these ‘hard up’ taxpayers: 

          • 14% have their home as their largest illiquid asset. 
          • 20% have business assets at their largest illiquid asset. 
          • 50% have pension assets at their largest illiquid asset.

          The Report proposes limited hardship provisions.  It might be wise to begin to set aside some cash, just in case it is needed.

          My shares have just gone down in value!

          In simple terms, the response of the Report is ‘tough!’  The more nuanced proposal is that ‘in cases of significant hardship where the value of an individual’s wealth fell drastically after the assessment date for reasons beyond their control, it may be possible to legislate a limited relief.’

          All our money is in my wife’s name

          The Report proposes that the less wealthy spouse might transfer any unused threshold allowance, effectively allowing a couple to be taxed together.


          Dad died last year.  He looked after us all financially.  My Mum’s the best in the world but she trained as a nurse, not an accountant.  There’s just no way she’ll be able to cope with all this, and as a health worker I can’t be much help to her.  On top of  Covid, we could do without all this.  What have we got to do now?

          This is not specific advice, since each family is different.  An individual owning wealth, including the house, of less than £250,000 probably need not worry at all.  The rest of us should now pause and take stock of things.  Many families do that at Christmas time anyway.

          Individuals with greater wealth than £250,000 should review their position and do ‘back of envelope’ calculations of their wealth to see how they might be affected if these proposals were to become law.  They should take advice, but no-one can advise effectively without the facts, so they should gather together the information first.  Just pulling all the information together is a valuable exercise and may point the way to a plan to deal with this tax if it arrives, as seems quite likely.

          One point does stand out: the Doomsday scenario.  Each wealthy family is now like a ship surrounded by submarines that might at any moment fire a torpedo.  With precious cargo aboard, it might make sense for some to take to the lifeboats without delay.  In practical terms, if you had been wondering whether to make simple lifetime gifts, do not delay.  Quite apart from the joy of giving and of being appreciated by your nearest and dearest for your generosity, the value of those outright gifts might escape the WT entirely.

          In practical terms, if you had been wondering whether to make simple lifetime gifts, do not delay. 

          Let’s work together