Is a Wealth Tax coming? Speaking to the BBC the Chancellor, Rishi Sunak, said the economy is ‘experiencing significant stress’ but that there is ‘more stress to come’. He is expected to use his one-year spending review today, 25 November 2020, to signal the need for future tax rises to help restore the public finances.
The Office for Budget Responsibility, the Treasury’s independent forecaster, said the Government’s annual spending deficit was on course to hit around £400bn, or 20% of GDP.
Flat-rate pension tax relief
According to The Times, the chancellor is drawing up plans to cut pensions tax relief for higher earners, in what has now become the perennial merry go round of tax relief speculation. Sunak is said to be ‘very attracted’ to the idea of moving to a flat-rate relief on pensions of 25% ‘as a matter of fairness’.
This would mean basic rate taxpayers would receive a boost to their pension contributions, while higher-rate taxpayers would see their contributions reduced.
For example, if a basic rate taxpayer paid £100 a month into their pension, this would be topped up to £133.33 rather than the current £125 – an extra £8.33. However, a higher rate taxpayer who currently sees their £100 increased to £166.66 would see this reduced to £133.33.
Increasing Capital Gains Tax (CGT) rates
The Office for Tax Simplification (OTS) recently released a report commissioned by the chancellor setting out proposals for an increase in the rates of CGT, or otherwise, a harsh cut in the annual exemption.
The maximum CGT rate of 28% could be raised closer to the top rates of income tax, which are 40% in England and 45% in England and Wales.
This would most affect those looking to sell property and those passing on their wealth – gifting money to children or grandchildren could become a lot more expensive.
Tax on those who choose to work from home
Economists at Deutsche Bank recently released a report proposing making staff who choose to work from home – without the constraints of the Covid-19 pandemic – pay a 5% tax for each day they work remotely.
The bank argued it would leave the average employee no worse off because of savings made by not commuting or buying lunch on-the-go.
Alternatively, the report suggests the tax could be paid by employers who do not provide their staff with a permanent desk in the office.
The report suggested the tax could raise around £7bn per year in the UK, which it said could pay out grants of £2,000 a year to low-income workers and those under threat of redundancy.
Introducing a carbon emissions tax
On 29 September, the Government closed a consultation on the Carbon Emissions Tax.
The UK is part of the European Union Emissions Trading System (EU ETS), a system that effectively caps establishments’ carbon emissions. If establishments exceed the limit, they are required to pay another establishment for additional allowance.
The UK will cease to be part of the EU ETS on 31 December this year. If it does not agree a similar system by 1 January 2021, it will implement either a UK version of the ETS or a ‘Carbon Emissions Tax’.
Under the Carbon Emissions Tax, establishments whose emissions exceed their annual tax emission allowance would become liable to pay the tax on their emissions.
HM Revenue & Customs (HMRC) is due to publish a response to this consultation shortly.
Introducing a Wealth Tax
The idea of a wealth tax is to introduce a tax across all wealth, or certain assets, above a certain value.
CGT is, in itself, considered a wealth tax. But other wealth taxes could include an annual property tax on homes over a certain value, also known as a ‘mansion tax’.
This is perhaps not very likely to be announced tomorrow as prime minister Boris Johnson ruled one out in the summer, but changes to CGT could be included as part of the Spending Review.
Income tax and National Insurance rises
Johnson has ruled out rises in income tax, VAT and National Insurance as ways to raise revenue.
But in an interview with The Sunday Times at the weekend, the Chancellor refused to confirm the government would retain its manifesto pledges to freeze these rates.
When asked if tax rises are on the cards, Sunak told the newspaper: ‘Once we get through [the crisis], we’ll have to figure out what the best way of returning to sustainable public finances is. I’m hopeful that by the spring, with positive news on both mass testing and vaccines, we can start to look forward.’
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