Part of this new debate prompts questions around ‘taxing the rich’ which at first glance seems like a simple, albeit ideologically-inspired proposition. In reality, this idea is anything but straightforward. The idea of a ‘Robin Hood tax’ has been floated several times in history in various circumstances where a wealth tax could inject cash into areas of public spending that have historically been neglected.
Income vs Wealth
Income generally refers to the ongoing flow of funds into a household (i.e. salary, dividends etc) whereas wealth represents the assets of the household (i.e. property, shares etc). Taxation of both income and wealth does routinely occur and careful tax planning is essential for those who intend to remain tax-efficient in the long run. However, in the current economic climate, the appetite for additional wealth taxation is growing.
When defining who would be considered rich, there are significant complexities to consider from regional variations through to the liquidity of assets held to satisfy the tax due. For those who possess high-value assets, such possession does not explicitly suggest that any means other than selling the asset to raise the cash required to pay the levy exists. This naturally calls into question the fairness and proportionality of the tax.
Income’s Regional Element
If we consider regional variation, taxation on income in England is applied regardless of where one resides in the country despite the astonishing variation in living costs between parts of the country. Rather than by means of tax relief, the difference in costs is acknowledged by the employer and a higher salary is typically offered for roles based in the South East of England amongst other areas. However, the lifestyle choices of an individual earning £50,000pa living some distance north of London are undoubtedly very different from a person earning the same salary, residing inside the M25.
Strategic Tax Planning
The government has a lot to consider in this situation. It must balance paying back the debt accrued as a result of pandemic support spending with not increasing taxation to a point that impacts negatively on consumer spending, as this will be a key component of the recovery process for years to come. The 2021 Budget certainly contained some controversial elements but this may not be the full extent of government efforts to increase tax receipts.
In essence, tax planning may now require a more strategic outlook than ever before.