Why the UK should NOT bring in a wealth tax

I have read the articles in the National over the last few days by those who think that we need to tax wealth more and I agree, we should. What I do not agree with is the suggestion made by many people that we need a wealth tax to achieve this goal.

I make this observation based on experience. Unlike the vast majority of people who comment on tax from the left-of-centre perspective, I have been a chartered accountant and tax practitioner for more than 40 years. Over that period I have been involved in settling many contentious tax disputes with HM Revenue and Customs, including with regard to establishing asset values for the purposes of taxation. As a result, I know just how hard this is.

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Let me offer a couple of examples.

First, valuing a “normal” house is easy. Just look on Zoopla. Likewise valuing quoted shares is easy. Just look in the FT.

But valuing the “one-off” properties in which the wealthiest live is not down to looking at Zoopla. And valuing shares in private companies, which are never traded, can be very hard and is open to serious disagreement and dispute.

And whilst for many of us valuing our household effects is not hard – because it comes to not a lot overall, the wealthy have collections of the most ridiculous things that might be really hard to value.

What is more, the wealthy also have the money, the lawyers, and the accountants to question any valuation HM Revenue and Customs may propose for wealth tax purposes. In that case, the cost of collecting a wealth tax will be very, very high.

That also needs to be put in context.

The TUC is suggesting a one-off wealth tax might raise £10 billion. Others suggest more could be raised, but overall, these are small sums in the grand scheme of a tax system that raises £800 billion a year.

The fact is that the scale of the aggravation involved will never be justified by raising such small sums in revenue.

That is why I have during the course of this summer been working on a related but quite different project. What I have been looking at is how we could raise substantially more tax from those with high incomes and wealth by simply tweaking existing tax rules. It could be done in a way which guarantees that very much more tax could be raised with very many fewer problems arising in the process.

I have now identified more than thirty such tax changes and will be publishing them over the next three months or so. There will be several with regard to every major tax in the UK (income tax, national insurance, corporation tax, capital gains tax, inheritance tax, value-added tax, council tax).

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There will also be some significant recommendations made with regard to changing the administration of the tax system – because it is hopelessly inefficient at present.

I am doing this for good reason. My research shows that, in the UK between 2011 and 2020, those with significant wealth may have seen a tax rate on their combined income and wealth increase that is less than half the tax rate paid by those with the lowest income. There is most definitely a wealth problem that needs to be addressed.

It is my suggestion that making many changes to existing taxes is the way to address this issue – not least because I think this will raise considerably more money than a wealth tax.

For example, just one such change, which would be to eliminate the higher rate of tax relief provided on pension contributions to those who are 40% and 45% taxpayers in the UK, could by itself raise at least £12.5 billion of extra tax – plus a further £2 billion in National Insurance.

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That change – which would be simple to legislate, easy to administer, and completely fair (there can be no justification for subsidising the savings of the rich in our society by more than we subsidise the savings of everybody else) – could by itself bring in more than the wealth tax proposed by the TUC. Add in the other twenty nine proposals that I am going to make, and the difference in scale is staggering.

My point, then, is a simple one. We do need to tax wealth more. But we do not at present charge the income earned from wealth at anything like the rates charged on income from work. And we provide the wealthy with many opportunities to save tax that are unavailable to everybody else. As such, we should begin the process of reform by making sure that we tax the income from wealth and from high earnings to best effect.

Only when we have done that should we worry about a wealth tax.