If Rachel Reeves were to introduce a wealth tax it would be a disaster and could cause more harm than good, advisers have said.
As the Budget nears, speculation continues about whether the chancellor will introduce a wealth tax as she tries to plug a £50bn black hole in the UK’s finances.
Analysis of previous wealth taxes by Rathbones found more than £100bn of wealth could shift overseas, or into less productive assets, if a wealth tax were imposed here.
It also found a wealth tax could cost the government £600mn to set up, with ongoing compliance and administrative costs on taxpayers of £700mn a year or more.
Advisers warned wealthy clients would simply relocate, leaving business owners and entrepreneurs to bear the brunt.
£100bn
Amount of wealth which could shift overseas if a wealth tax were to be introduced
Ruairi Dennehy, chartered financial planner at Dennehy Wealth, said if Reeves were to go ahead with the tax it would cause more headaches and red tape at a time when businesses were already fighting fires.
“We wouldn’t be surprised to see a wealth tax or something similar come into effect in the near future.
“Though we are concerned more so with the structure of introducing this tax. It raises a lot of significant questions that would require deep thought and consideration.
“For example, if you set the threshold at £10mn and anything above this level pays a 2 per cent annual levy, what assets are being taxed?
“Take farms and family businesses for example (both of which have already felt the pinch from last year) many of their assets are not readily liquid and are tied up in property, machinery or private shares. How do they expect these entities to find the cash?” he asked.
Mobile clients
Omer Mehmet, managing director at Trinity Finance, believed the ultra-wealthy would restructure or relocate, while business owners would be caught in the crossfires.
“The cost of administering and enforcing it could outweigh the revenue it raises.
“If the government wants fairness, it should focus on closing loopholes and reforming outdated property and capital gains taxes rather than creating another complex levy that drives capital overseas,” he added.
It sounds politically clever but economically reckless
Relocation seems to be a popular option for the wealthy, with Riz Malik, director at R3 Wealth, saying not a week goes by where he does not hear someone planning to relocate to Dubai or a similar favourable jurisdiction.
Harry Goodliffe, director at HTG Mortgages, was of the same opinion that wealthy clients were more mobile than ever and if a wealth tax were to come, they would leave the UK.
“A wealth tax would be a disaster in practice. It sounds politically clever but economically reckless.
“Reeves should focus on fixing the broken tax system we already have, not punishing success with a policy that would do more harm than good. The UK needs growth, not another deterrent,” he said.
Thanks to the Newspage community for responding to FT Adviser’s requests for comments.
alina.khan@ft.com
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