Who would have thought this time last year – that all our resolutions would turn to ashes at the feet of covid - 19. We have had a challenging year – even for those for whom the year has not been all bad – but now that we have an end in sight – vaccines to bring down the hospital overload, instant antigen testing – what will we do?
Go back to the world we once knew, or will we see the start of a revolution – something different?
I suspect it will be a mixed bag – we will go back to most of the things we enjoyed; holidays, eating out and spending our hard-earned money on friends and family – but we will also reconsider how we shop, eat, travel and network.
And what will our clients – the world’s wealth creators - have to look forward to, a return to a full order book, an uptake in hospitality and leisure industries and if successful – a wealth tax?
History and other countries indicate that a wealth tax should be left well alone – but maybe not?
We are all too aware that the recent lockdowns in the UK have blasted a £400 billion hole in the UK public finances – and this figure is still rising
The Wealth Tax Commission (WTC) a group of academic economists from the University of Warwick and the London School of Economics suggest a 5% levy on personal net wealth above £500,000 spread over 5 years will raise as much as £260 billion from only 8 million people.
It has done its own research and taken evidence from more than 50 tax experts, from think tanks (including the Institute of Fiscal Studies), and OECD club of nations, as well as lawyers and policy makers.
Within the definition of wealth, the WTC includes housing (including your primary residence), pension schemes, businesses and financial assets such as shares and funds.
But there will always be exemptions, in which no doubt our podcast professional of the week Matthew Steiner of Stellar would pay close attention.
In most wealth tax laws there are, asset classes such as woodland and farmland which are exempt with the effect that debt is secured against assets subject to the wealth tax and then used to invest in exempt assets which has the effect of distorting the market.
The next focus will be on whether private company shares or AIM investments will be exempt. If not, there will be a disincentive to build value within a business with the result that the entrepreneur will tread water for a few years until the tax is repealed or dissipate it through gifts. Either way the wealth tax if it includes businesses and AIM shares is a disincentive to the wealth creator– and is counter-productive in raising money
If it includes pension schemes it would be unfair on those wealth creators who have defined -contribution pensions, compared with those – usually in the public sector with a defined-benefit scheme – this distinction would be discriminatory against private-sector workers – and a further disincentive for the wealth creator.
In the UK the last time the government tried to raise a wealth tax under a Labour Government was between 1974 and 1979 when it could not decide what to assets to leave within the definition of wealth to make the tax worth the administration and bother to collect and what to leave out so as not to be unfair.
If everything is taken out other than property, such as homes and publicly quoted shares – this discriminates against the elderly who may have low incomes, may not find it easy or desirable to sell their home and are living off savings from taxed revenue. If savings are left out not to be unfair on the elderly – then you are left with a mansion tax – or something like it – which of course discriminates anyone living in London – thereby creating the level playing field which Boris seems to want to achieve!
But if you are going to sell up – why reinvest in property in the UK when you have proved able to work at home – why not relocate to lower tax jurisdictions such as to Guernsey, Jersey and Isle of Man?
Episode 37 -
Working with Partners, Matthew Steiner: Stellar AM
In Episode 37, Caroline Garnham speaks with Matthew Steiner, a Corporate Development Director at Stellar Asset Management. Matthew has over 20 years of experience in the Financial Service Industry. Caroline and Matthew talk about Stellars vision relating to investing for now, as well as investing for the next generation without having to pay inheritance tax!
History reveals that almost all countries which have tried a wealth tax have found it to be counterproductive.
France abandoned its version of the wealth tax two years ago as its wealthy residents took up residence in London. Sweden also repealed its wealth tax after nearly a century in 2007 which leaves only a handful countries clinging on to this form of taxation; Norway, Spain, Switzerland and Belgium.
Rishi Sunak whose father-in-law has a higher net value than the Queen ruled out a wealth tax in July but if he sticks to the Conservative manifesto not to raise income tax, NICs or VAT he does not have many options available; but we may seem some creative new names for variations on old ideas!
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