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Wealth Tax Proposal Unjust: Rich Already burdened by Covert Taxes - Merryn Somerset Webb (Paraphrased)

Proponents advocate for imposing a wealth tax on the affluent, arguing it's necessary to generate additional revenue. However, Merryn Somerset Webb counters that the rich have been financially drained already.

Proponents Advocate for Higher Taxes on the Wealthy through a Wealth Tax. Somerset Webb argues...
Proponents Advocate for Higher Taxes on the Wealthy through a Wealth Tax. Somerset Webb argues they've paid enough, she contends.

Wealth Tax Proposal Unjust: Rich Already burdened by Covert Taxes - Merryn Somerset Webb (Paraphrased)

The UK's progressive tax system forces both high and moderate-income earners to shoulder a substantial tax burden. Although the UK has lower tax thresholds compared to some other countries, the effective marginal tax rate climbs steeply.

Individuals with university degrees and student loans can end up paying an effective marginal tax rate of 37%, once their income surpasses £25,000. Even those without loans start paying 28% tax from an income of £12,584, including National Insurance—essentially another form of income tax.

Reaching the £100,000 income threshold comes with added penalties. High-earners lose their personal allowance as they surpass this threshold, which means they no longer pay nothing on earnings below £12,500. Moreover, if they have children, they also gradually lose their childcare allowance. As a result, the effective tax rate for high-earning families can surpass 100%.

According to the Taxpayers' Alliance, the top 10% of income earners in the UK accounted for 35.1% of total UK income in 2024-2025, with the top 1% accounting for 1.3%. Furthermore, they paid 28.2% and 22.7% of all income tax respectively, representing a significant portion of the tax revenue.

In addition to income taxes, the UK employs a variety of luxury consumption taxes such as VAT on private school fees, a £2,100 tax on luxury cars, and increasing air passenger duties. There is also a proposed frequent flyer tax intended to curb air travel. While these taxes may not be strictly wealth taxes, they continue to target high-income earners.

The UK Government imposes a range of actual wealth taxes as well. Inheritance Tax (IHT) charges 40% of an estate with an effective valuation of more than £500,000 for a single person and £1 million for a couple. Capital Gains Tax (CGT) also targets wealth, with 40% taxpayers charged 24% on any gains exceeding £3,000, a figure that has not been adjusted for inflation.

Stamp Duty is another form of wealth tax levied on shares trades and property transactions. A 0.5% tax is imposed on every share trade, and a property purchase for over £145,000 in England is subject to a stamp duty ranging from 2% to 12%, making even relatively affordable houses subject to this substantial wealth tax.

However, even these measures may not be enough for certain British tax policymakers who have suggested implementing a formal wealth tax. The Patriotic Millionaires UK, a group of high-net-worth individuals, have proposed a 2% annual wealth tax on those with a wealth exceeding £10 million. This suggested tax has been criticized as unnecessary, given the existing wealth taxes and their tendency to trickle down to lower-income groups over time. The idea of a widespread wealth tax has been met with skepticism and discussions around potential economic ramifications, as the flight of high-net-worth individuals out of the UK has already been observed.

Although wealthier individuals have the option of declining certain tax incentives, such as ISA allowances, council tax reductions, and estate planning strategies to minimize their tax liability, these measures are unlikely to significantly address the proposed wealth tax. Proponents of the wealth tax argue that the wealthy can simply send cash directly to the tax collection office if they so choose.

It is essential to consider the historical context of wealth taxes, as previous attempts to implement such a system in the UK failed due to the complexity of tax valuations, the likelihood of capital flight, and potential economic damage. The UK Government's current policy on taxing high-net-worth individuals has already shown a deterrent effect, with a net loss of 10,800 millionaires in the country last year. Despite the push for a formal wealth tax, many experts remain skeptical about its effectiveness and potential negative consequences.

Individuals seeking long-term financial security might consider diversifying their investments beyond just pensions, as savings, property, and other forms of personal-finance may offer alternative means to accumulate wealth. Given the UK's progressive tax system, high-income earners and even those without high incomes face substantial portions of their earnings being taken as income tax, National Insurance, and various wealth taxes such as Inheritance Tax, Capital Gains Tax, and Stamp Duty.

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