Wealth tax levy must strike careful balance to protect UK economy, warns Grunberg & Co.
The North London-based accounting firm urged caution as the European Union (EU) Tax Observatory calls for a minimum tax levy on individuals with a net worth of $1 bn (£824.7mn) or more.
The Observatory released its Global Tax Evasion 2024 report in October 2023, with the goal of identifying methods to prevent tax evasion and avoidance – particularly among the world’s wealthiest individuals, which number around 2,500, with a combined wealth of $13 tn (£10.7 tn)
The proposed levy would impose a minimum 2% tax rate on the global wealth of billionnaires, who the report says typically pay tax rates at less than 1% due to “the frequent use of shell companies to avoid income taxation”.
With renewed calls for a levy, Grunberg & Co have cautioned against rapid, sweeping reforms – despite intentions of reducing inequality and financial malpractice.
Grunberg & Co tax partner, Nimesh Patel, commented: “The introduction of a wealth levy is not a new concept in the UK, but previous efforts have not come to fruition despite the clearly benevolent intentions behind the concept.
“Obviously, we would initially see an influx of wealth into the general economy. Subsequently, a wealth tax in the UK is likely to lead to individuals looking to relocate away from the UK and fewer wealthy individuals coming live and invest here.
“This may have a significant impact on economic performance and growth which, in turn, would have a potentially significant impact on consumers.”
However, despite a cautious approach to a wealth levy, the firm highlighted the positive impact of incremental steps being taken in the UK to reduce wealth inequality.
“Many of the world’s wealthiest people are non-UK domiciled, but recent changes in rules that have increased the UK tax burden on those individuals.
“For example, non-UK domiciled individuals are taxed as if they are UK domiciled, if they have been UK resident for at least 15 out of the previous 20 tax years. This would mean their worldwide assets would be within the scope of UK inheritance tax.”
Nimesh concluded: “Clients are likely to want to take advice on whether they can structure their affairs differently to avoid having to pay the levy either by becoming internationally mobile or restructuring the ownership of assets.
“However, a levy such as this would only affect accountants whose clients have a total wealth above the set threshold, so we wouldn’t expect the vast majority of UK practices to be affected by it.
“However, what we would expect to see is individuals looking to plan for the resulting economic impact.
“We’d urge anyone seeking advice on planning for an economic downturn, concerned about their financial position or simply wanting to plan for the future to consult us. Our talented team can provide the guidance that consumers need to move forward and navigate this type of legislation with confidence.”
