Wealth Taxes we should all be concerned about?

To set the scene, it was the anarchist Proudhon who said all property is theft, whereas the communist Marx disagreed, and felt personal property was fine, it was only business property he had an issue with. If that is accepted it puts the current approach to the left of communism and to the right of anarchy!

To understand why we should all be concerned we only need to look at Insurance Premium Taxes (IPT) to see how new taxes introduced at a low level can increase significantly. Introduced in 1993 at 2.5%, it is now charged at 12%.

Mansion Tax (HVCTS)

Introduced on properties valued in 2026 at over £2,000,000 at £2,500 increasing to £7,500 for properties over £5,000,000. However, fiscal drag over a number of years means that this will likely impact many ordinary properties in the South East. Further if the level at which it is paid is reduced, like IPT, then properties much lower across all regions could also be impacted. Another point here is that the impact on property values has been instant in what is already a very difficult market for properties in this price bracket.

As a probate practitioner, a common phrase I come across is “In the South you live poor, die rich, but in the North you live rich and die poor”. This expression conveys the much lower living costs in the North and the much higher house prices in the South. This is an issue when it comes to levelling up particularly for the younger generation, particularly in being able to live in the area they grew up. The mansion tax further exacerbates this problem which is being addressed by government in other regions and with other incentives.

At introduction this is a tax particularly on London properties that will clearly distort the housing market and therefore harm its ability to operate effectively, creating steps much as SDLT used to. A fairer tax would be on square footage to truly tax those living in larger properties. There are examples in London where pensioners living on small pensions will be subject to the “mansion tax” on a two up, two down property, but will not have the income to pay it. This will mean a debt accumulating against the property that may in fact not be due when a sale is made. Further they are unlikely to have the funds to challenge the valuations which will often be done based on inaccurate information. In some cases, these are properties that have been owned for decades and therefore not in the same condition as others sold locally more recently. A fairer approach would be an additional council tax band and rather than the implication it is added to council tax, actually pass it to councils, rather than added to central government coffers.

Pensions

A tax on private sector pensions was announced last week to add to the already significant changes brought in by Gordon Brown in 1997 and the gradual regulatory burden affecting values since. These changes will see some people with a tax burden of over 100% between £100,000 and £125,140 that they are now unable to avoid. This is a clear message that will prevent senior managers progressing, thus limiting social mobility and adding to state costs in their retirement. There is no impact for public sector pensions which have a current liability in excess of £1Trillion and some estimates put it at over £2 Trillion!

Inheritance Tax

Changes in the budget last year to BPR and APR further attack assets held and make continuing to hold them less attractive. This is causing a number of sellers consider their options with the effect of this to take a number of years to become apparent.

Car Taxes

Much like IPT, the introduction of a pence per mile charge is at an insignificant level. However, a combination of factors means that this is likely to increase over time. This has already impacted EV car values, another “tax on assets”.

In Summary

Taken together, these measures have the potential to be very damaging for the economy. One should consider a strategy that converts assets to more liquid and therefore moveable funds.