Is it the appropriate moment for a worldwide levy on affluence?
In the realm of financial policy, several key developments are being proposed by political parties in the UK. Let's delve into the changes concerning capital gains tax, wealth taxes, and inheritance tax.
Labour has pledged to scrap the loophole that allows for lower taxation on capital gains for certain individuals. This loophole currently sees partners in private equity firms and certain investment managers taxed at a rate of 28%, instead of the 45% additional rate of income tax.
In a bid to address wealth inequality, Labour plans to introduce a wealth tax if elected. However, specific details on the rate or thresholds have not been provided yet. It's worth noting that the Greens are the only party committed to a wealth tax, proposing a 1% annual levy on wealth above £10 million and 2% on assets above £1 billion.
Wealth taxes, while hard to implement and often criticised for damaging entrepreneurship, are said to not raise much money. This contrasts with Labour's aim to use the tax to address inequality and fund public services.
On the other hand, Labour has ruled out rises in income tax, national insurance, and VAT, but will likely increase taxes on the wealthy to avoid massive spending cuts or higher borrowing.
The UK's inheritance tax rate stands at 40%, but the country currently imposes no exit tax on individuals heading off to tax havens. Dan Neidle, in light of Brexit, argues for the imposition of an exit tax as an opportunity. Neidle also suggests equalizing capital gains and income taxes, but with an "indexation allowance" to adjust for inflation.
Interestingly, a global wealth tax on the existing assets of billionaires could generate up to $250 billion (£197 billion) in extra revenue annually, according to a report by French economist Gabriel Zucman. This idea is supported by the proposition of a similar international scheme for a global wealth tax, as suggested by economist Paul Sandbu.
It's important to note that only three countries (Spain, Switzerland, and Norway) currently have a wealth tax. Many countries abandoned wealth taxes due to being perceived as unpopular, economically damaging, administratively cumbersome, and prone to avoidance and evasion, while not delivering much revenue.
Labour has also stated that it will shield non-doms who lose benefits from next April from inheritance tax by allowing them to permanently avoid paying tax on foreign assets held in an offshore trust. If Labour wins the election, they plan to toughen the rules on non-doms further.
In the 1980s, Nigel Lawson introduced a tax regime that equalized capital gains with income tax rates. The combined wealth of the top 100 people in The Sunday Times Rich List was £172 billion in 2010. This year, it stands at £594 billion. Once in place, a global wealth tax could potentially be expanded to include those with hundreds or even scores of millions.
In conclusion, the UK's taxation policies are undergoing significant changes, with proposals for wealth taxes, changes in capital gains tax, and adjustments to inheritance tax. These changes aim to address wealth inequality and fund public services, but the specifics are still being worked out by the political parties.
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