How can I protect my money if the Government introduces a wealth tax? I’ve worked hard and saved all my life – how can it be fair for politicians to come after people who have done the right thing?
Tom

Tom Selby, AJ Bell Senior Analyst says:

It’s important to kick off with a bit of context. While there have been stories in the press, at no point has the Government said it wants to impose a wealth tax on UK citizens.

Rather, this is part of the ongoing debate about how the Treasury pays the costs associated with Coronavirus, which have already run into the hundreds of billions of pounds.

Because there is no proposal it is impossible to say with any confidence what, if anything, you could do to protect your assets from a wealth tax. It’s fair to assume if the Government did go down this route, it would be careful to design the tax in such a way that large scale avoidance would be difficult.

WHAT COULD A WEALTH TAX LOOK LIKE?

If a wealth tax were to be introduced, it could take various different forms. For example, policymakers may want to make it as wide-ranging as possible, covering everything from people’s property to their retirement assets.

Alternatively, certain forms of wealth could be exempted from the levy – although clearly this would reduce the amount of money the Chancellor would be able to raise.

The Wealth Tax Commission – which consists of a group of economists and academics – sketched out how much money a wealth tax could potentially deliver to the Exchequer.

After accounting for non-compliance and administration costs, the Commission estimates a one-off wealth tax payable on all assets over £500,000 and charged at 1% a year for five years could raise a staggering £260 billion.

Alternatively, setting the threshold at £2 million could bolster the Treasury’s coffers to the tune of £80 billion.

The Commission says other ways to get £260 billion include:

• Increasing all rates of income tax by 6p

• Increasing all rates of VAT by 6p

• Increasing corporation tax by 5p and VAT by 4p

IS A WEALTH TAX THE ‘RIGHT’ THING TO DO?

This is a question that goes beyond the remit of a column principally aimed at helping people with pensions and retirement problems.

However, you can understand why – IF the Government believes it needs to raise hundreds of billions of pounds to recoup the costs associated with Covid – it could be attractive.

In particular, because the Conservative manifesto pledged not to increase VAT or income tax rates, the Government may feel like it was one of only a few options open to it (assuming it wants to stick to that manifesto pledge).

In terms of your own finances, it’s best to avoid letting speculation about a tax that may or may not happen cloud your thinking.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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