Proposed Wealth Tax

[BootsieBarnes]

It's been discussed in the press that the Chancellor is considering a one-off wealth tax of 5% on assets over £500k. Allegedly this is being considered as part of the March budget to make a dent in the huge Covid debt the UK is facing.

So in real terms that would be a £25k tax bill for someone who has assets valued at £500k, such as property.

What do you think about this? would your family be able to swallow a tax bill that size?

I'm not doing any research, I just read that and thought about the impact it would have on families living in houses in that price bracket.

I've put on voting as well for interest. I'm not actually sure where I stand on this as I can see both sides, so this is just an arbitrary allocation just for voting.

YABU - people with assets that big should pay

YANBU - that would be unfair

"There is already a mechanism for valuing it - that came in with the lifetime limit and resultant tax charge which caused a lot of problems for the likes of NHS doctors and dentists. I would imagine the same valuation system would apply for any wealth tax."

If you use LTA value (20xinitial pension), then large numbers of Nurses and other medical staff plus teachers and police officers will be liable for the tax before you even consider the value of their homes.
Are these the people we wish to target, and how do they raise the money to pay?

@Travellor

"There is already a mechanism for valuing it - that came in with the lifetime limit and resultant tax charge which caused a lot of problems for the likes of NHS doctors and dentists. I would imagine the same valuation system would apply for any wealth tax."

If you use LTA value (20xinitial pension), then large numbers of Nurses and other medical staff plus teachers and police officers will be liable for the tax before you even consider the value of their homes.
Are these the people we wish to target, and how do they raise the money to pay?

I agree. But you can't include pension values of "defined contribution" schemes in the private sector, but then ignore the "defined contribution" schemes of the public sector.

I mentioned doctors and dentists because they were hit by the £1m lifetime allowance so the issue was already known for them, whereas as you rightly say, nurses, teachers, police officers, etc may well be hit too, as their "nominal" value of their public sector pension schemes will be several hundred thousand, so along with house value, may well breach the £500k suggested threshold.

But, like I say, you can't include private sector defined contribution pension scheme values, but not include public sector defined benefit schemes. You have to include both or neither.

And why would you exclude those people anyway? Are we going to make some kind of moral judgement about wealth? Money is money, regardless of its owner’s occupation.

I'm not making a judgement between people's occupations. The idea was to point out that the proposed £500k limit would hit a lot of people that many wouldn't argue are wealthy.

@Travellor

I'm not making a judgement between people's occupations. The idea was to point out that the proposed £500k limit would hit a lot of people that many wouldn't argue are wealthy.

But you are making a judgement!

If you use LTA value (20xinitial pension), then large numbers of Nurses and other medical staff plus teachers and police officers will be liable for the tax before you even consider the value of their homes

As if those people are somehow more worthy than those who work in other occupations. As I said, money is money, it doesn’t make any difference what industry it’s earned in.

Of course, reforming NIC so that people had NIC deducted from their pensions would be a much better alternative than a wealth tax on pension values. Those with higher pensions (over current job related NIC thresholds) would pay NIC. Those with smaller pensions wouldn't. Sounds a much fairer solution as it's based on income, not asset value.

Or even better just scrap NIC and increase income tax rate instead.

The occupation doesn't matter! I just used those groups as an example all would be familiar with. Anyone with even a modest pension and a house would fall foul of the proposed limit. A quick google gave average house price in UK in 2020 as £265k. Applying LTA rate to the new state pension gives a fund value of £182k. No one claims the state pension will make you wealthy; but you do need somewhere to live.
The potential issue is the proposed limit.

@Kazzyhoward

Or even better just scrap NIC and increase income tax rate instead.

How would that work for benefit claimants and their future pensions, at the moment certain benefits have NI credits attached to them a lot of these people will be solely on benefits which are not taxed and those who work part time in low paid jobs which need benefits top ups will not earn enough to pay any tax. So the whole pension system would have to be changed and what would you put in its place to ensure people got a proper pension based on their contributions/credits

So, using your figures @Travellor, the average person wouldn’t be affected. Only 20% of us have assets exceeding £500k, there seems to be an impression on this thread that the population is considerably wealthier than it actually is.

And the NI “solution” is fraught with difficulties because of the link between contributions and benefit entitlement, as Oldsu points out.

God knows what the solution is.

vinyl - i think it probably depends on your age. if you are nearing/at retirement age then you have probably paid your mortgage off and should have built up a pension. If you live in the south then its really not hard to meet the 500k threshold. Unfortunately thats just the time when your income drops massively making it harder to pay the 25k

solution might be issuing government bonds as they did to cover WW2 costs (i'm not financial expert), or accept that since interest rates are low the debt is not an issue in the SY

If you live in the south then its really not hard to meet the 500k threshold

It can’t be that easy if only 20% of us manage it. 🤷‍♀️

@dreamingofsun

vinyl - i think it probably depends on your age. if you are nearing/at retirement age then you have probably paid your mortgage off and should have built up a pension. If you live in the south then its really not hard to meet the 500k threshold. Unfortunately thats just the time when your income drops massively making it harder to pay the 25k

Yes exactly that

@dreamingofsun

solution might be issuing government bonds as they did to cover WW2 costs (i'm not financial expert), or accept that since interest rates are low the debt is not an issue in the SY

Trouble is that one thing affects another in economics. We're not in a vacuum. What we do affects how others see us, such as other investors/countries who lend us money, other countries who trade with us, etc. If our debt is perceived to be too high (compared with other countries), then that impacts on our ability to borrow (someone has to buy our bonds!), so that may affect interest rates. Not to mention, the currently forgotten balance of payments deficit. All of which lead to inflation rates, exchange rates, etc. It's important that we stay "in balance" compared to other major economies as everything is interlinked and we really, really don't want to upset the equilibrium as that can lead to hyperinflation etc.

Bonds are not a way of paying off debt.

@VinylDetective

So, using your figures *@Travellor*, the average person wouldn’t be affected. Only 20% of us have assets exceeding £500k, there seems to be an impression on this thread that the population is considerably wealthier than it actually is.

And the NI “solution” is fraught with difficulties because of the link between contributions and benefit entitlement, as Oldsu points out.

God knows what the solution is.

I suspect your 80% figure doesn't include pensions. Anyone with a modest occupational pension which equals the state pension would fall into the mix as would large numbers of people who own a house. The two pensions above would give an LTA value of £364k so any house worth over £136 would be enough.

It’s not my 80% figure, it’s the ONS figure. The state pension obviously isn’t wealth, it’s income.

So is my occupational pension; but it has a LTA value. I can't leave either pension to my children; the value dies with me. So why treat them differently?