Libbi Cohen, Trainee Solicitor at Winckworth Sherwood, explores what Andy Burnham’s early comments on taxing wealth rather than income could mean for capital gains tax, property taxation and the future direction of UK tax policy.
Although Burnham has not yet published his tax policies, he has previously advocated that income is overtaxed and assets are undertaxed and has consequently hinted at increasing capital gains tax rates and introducing a land value tax. Despite not explicitly proposing a wealth tax, Burnham’s suggested reforms would likely have a similar practical effect if implemented.
While it is unclear at this stage as to exactly what Burnham’s tax manifesto will look like, we consider below what has been implied to date and what this could mean for individuals.
What is a Wealth Tax?
A wealth tax is an annual charge on an individual’s total net assets, including, for example, property, cash, investments and pensions less their liabilities, such as loans and mortgages. The aims of wealth taxes are broadly to reduce wealth inequality and increase government revenue.
The UK does not currently have a comprehensive wealth tax. Instead, wealth is taxed in the following ways:
- Inheritance tax;
- Capital gains tax;
- Council tax; and
- Stamp duty land tax.
Several European countries have trialled various forms of wealth taxes. However, with the exceptions of Norway, Spain and Switzerland, most countries abolished their wealth taxes between the late 1990s and early 2000s, largely because the administrative burden outweighed the lower-than-expected revenues generated. Ultimately, the European experience of wealth taxes suggests that although wealth taxes can be politically attractive, they often fail to achieve their intended objectives.
What Would a Wealth Tax Look Like in Burnham’s UK?
Land Value Tax
Burnham has indicated plans to overhaul the current stamp duty and council tax systems and implement a land value tax.
Currently, by virtue of the Local Government Finance Act 1992, council tax is charged annually in the UK in relation to the value of one’s property using value bands which were set on 1 April 1991. Stamp duty land tax, provided for by the Finance Act 2003, is a one-off charge payable on property transactions worth more than £125,000.
By contrast, land value tax would be an annual charge on the value of the land itself, not just the property that is built upon it. Land value tax would ultimately increase the taxes faced by homeowners in parts of the country, such as London, where the value of land is relatively high, whilst reducing the burden in areas, such as the North East, where land is cheaper.
Capital Gains Tax
In the UK, pursuant to the Taxation of Chargeable Gains Act 1992, capital gains tax is payable on the profit realised when disposing of an asset that has increased in value. The tax is paid on the gain made between acquisition and disposal, rather than on the sale proceeds themselves. Basic rate tax payers currently pay capital gains tax at 18% while higher rate taxpayers pay 24%. Burnham has signalled increasing the rate of capital gains tax to bring them in line with income tax rates, which currently stand at 20%, 40% and 45%.
Inheritance Tax
Whilst Burnham was acting as the health secretary between 2009-2010, he advocated abolishing the current inheritance tax system, provided for by the Inheritance Tax Act 1984, where estates above £325,000 are taxed at 40%, and replacing it with a flat taxation of 10% on all estates on death. Burnham proposed that the revenue generated from such a tax should be used to fund free social care for all by way of a National Care Service. Burnham repeated this sentiment at a conference in 2023 and again on the social media platform, X, in 2024.
What Do These Potential Changes Mean for You?
We understand that the current uncertainty surrounding taxation in the UK can be daunting and may make confident long-term financial planning more difficult. Nevertheless, it is crucial that individuals take the time to better understand the potential incoming changes that may lie ahead and consider appropriate financial planning opportunities before any reforms are implemented.
Seeking professional advice at an early stage can help to ensure that existing structures remain effective and that any future changes can be navigated with confidence.
