Jeez folks, get this right

The proposals laid out a five-year plan to tax 1pc of individuals’ wealth above £500,000 after debt.

No. It’s 5%. Taxed at 1% per year for 5 years.

This should be obvious. Household wealth is £14 trillion or so. 1% of that – even without limiting the taxation to the richer folks – is £140 billion. Thus a tax which raises £260 billion cannot be only 1%, can it?

11 thoughts on “Jeez folks, get this right”

  1. So Much For Subtlety

    I am not really following this story and I have no idea what the proposals are, but it is really to tax people on their wealth *after* debt?

    Am I wrong to see the flaw in this? If I own a massive stately manor and the government wants to tax me, what is to stop me borrowing against it’s value, moving all the cash to Switzerland and earn some interest. At the moment interest rates are low so it is probably fairly neutral. And I am not paying 1% of the value of my assets.

    More interesting is what if I have pledged said manor as a Name at Lloyd’s? Does that count as debt?

  2. A more mundane scenario than SMFS’s would be that asset rich/cash poor oldsters would go for the largest equity release deals they could obtain, enjoy a more lavish lifestyle than they otherwise might and leave a mere residual rump of an estate below the IHT threshold when the grim covid reaper (his work will never be finished) harvests them.

  3. Much more importantly, where is this magic cash going to come from? If you are the sort of person who has net assets >500k, it’s not sitting about in cash.

    Either it’s illiquid (because it’s the value of the business you own – and have built up over your lifetime) or it’s really illiquid (because a big chunk of it is your house) or it’s really really illiquid (because it’s your pension).

    Impact of everyone at the top end of the scale trying to sell >>1% of their liquid holdings? Utter carnage – there will be no buyers at all.

  4. @ The Pedant-General
    It’s even worse than that: the middle-aged guy with a DB pension (mostly public-sector but there are a few private sector ones extant) an expensive house and a large mortgage which he is scheduled to repay by the time he reaches 65 would be required to sell, or borrow, 1% of net assets *each year* when he has zilch (well, three months’ spending is standard but that’s zilch relative to nominal wealth) in liquid assets. we would get a fire sale of executive houses which would put the most highly-geared non-sellers into “negative equity”.
    This would hit the “squeezed middle-class” as well as the rich – at current interest rates your pension can be worth over £1m without pushing you into the higher rate tax bracket.

  5. Wonky Moral Compass

    @john77, please show your workings.

    My understanding is that HMRC values DB pensions at 20 times expected annual pension. If you’re looking at collecting £50k a year from your DB scheme in retirement, how could you not be a higher rate taxpayer while still working?

  6. If you’re lucky enough to have a pension that’s RPI/CPI protected with 50% to surviving spouse, the cost to buy it in the open market for a male aged 60 is ~£40 per £1 of pension. A pension pot of £1 million does not take you into permanent luxury cruise territory.

  7. @Wonky Moral Compass: this morning’s paper said that the suggestion was that DB pensions be valued by their CETV. (For govt pensions as enjoyed by inspectors at HMRC I somehow expect that the preposterous x20 method might be used.)

  8. Wonky Moral Compass

    FWIW, when I asked what I’d get for an old private sector DB pension back in 2018, the multiplier was only just over 22. Surprising as I’d assumed they’d be keen to get me off their books.

  9. Wealth near to retirement is not necessarily wealth. In accounting terms, it’s deferred income, to defer and match against your costs to be incurred in the years ahead when you aren’t working. A bit like Richard Murphy deferring income on that grant of his on the other thread so that no Corporation Tax would be paid in the current year…..

    Nil wealth at 20, max by 50 or 60 or whatever, back to nil by the time you shuffle. One could argue that the genuine wealth element of that at max relates to the % that you haven’t spent by the time you shuffle.

    But no wealth tax will care about the timing issue of so called wealth. Plus cost of administering, and liquidity and other issues stated above.

    It’s just a really shit idea – Tim, as all the sentient evidence given to your earlier Parliamentary committee session made perfectly clear.

  10. Apologies, I forgot to add.

    The bit that’s left when you shuffle. Yes, we already have it covered – it’s called inheritance tax.

  11. @ Wonky moral compass
    Chris Miller has shown that for a just-retired 60-year-old the pension alone can be valued at £1m without taking you into the higher tax bracket.
    Pre-retirement: let’s say guy is on £42k with DB pension of £28k and mortgage of £200k on a house valued at £500k – since real interest rates are negative the pension is more than £28k times his post-retirement life expectancy so £770k for a bachelor, more if he’s married, which on its own is over the £500k threshold, add in the equity in the house and you’re over the £1m. Out of his £42k he has to pay tax of nearly £6k, NI of £4k, interest of £5k, mortgage repayments of £10k, general living expenses – that doesn’t leave him with enough (if any) spare cash to pay an extra £5k+ of wealth tax each year

Leave a Reply

Your email address will not be published. Required fields are marked *