Stuart Adam, a Senior Economist at IFS, said:
‘There is growing speculation about
whether taxes will go up in the Autumn Budget and – if so – which
ones. One idea that is currently attracting interest and debate
is an annual wealth tax that would apply to assets over a certain
value.
It is difficult to make the case that
an annual tax on wealth would be a sensible part of the tax
system even in principle (some useful information for reference
here and here). Taxing the same
wealth every year would penalise saving and investment.
In practice, implementing a wealth tax
would be difficult. It would require the government to set up a
new administrative apparatus to value wealth – and valuation
would be extremely difficult for some assets, such as private
businesses: it is much easier to observe and tax the stream of
income they generate. An annual wealth tax would need to
apply broadly to all assets to ensure that it was not easy to
avoid. Such a tax could raise significant revenue if it applied
to the bulk of the UK's wealth – that would include the homes and
pensions of the middle class. Trying to raise large amounts of
revenue from only the very wealthy would make the UK a less
attractive place for those people to
live.
International experience of annual
wealth taxes is not encouraging: they have been abandoned in most
of the developed countries that previously had
them.
There are strong reasons to radically
reform how we currently tax the sources and uses of wealth; this
includes reforming capital income taxes in order to properly tax
high returns. An annual wealth tax would be a poor substitute for
doing that.'
