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Countries beset by borrowings to aid their pandemic response are faced with the cost of repayment – the main mooted solution being to raise taxes in the short to medium term. As an example, the UK is not only considering wealth, capital gains or income tax impositions but also a combination of two or more.
One suggestion is a one-off tax on the wealthy to recoup the billions of pounds of tax shortfall caused by the pandemic. The Wealth Commission report (tinyurl.com/y2745gjf) makes the case for a threshold-based charge against all assets of UK residents, including pensions and homes, but less debts such as mortgages. The commission proffers a suggested threshold of £1m for a household – assuming two individuals with wealth of £500,000 each and a rate of 1% a year on their wealth above the threshold. This one-off wealth tax, payable in instalments, would raise £260bn over five years. This would fund only a proportion of the UK’s tax shortfall and other tax rises may therefore be needed although, with current low interest rates and inflation, the repayment burden in real terms will reduce in the longer term. Notwithstanding the ability of the wealthy to find ways to avoid any such tax impositions, a wealth tax has no proportional benefit to them unlike the UK’s National Insurance contributions liability. The position might be different if, say, those who were liable received a credit for such a ‘Covid tax’ against their UK inheritance tax bill on death.
As mentioned, the wealth tax rate suggested is 1% after an exemption of £1m for a household and this would be payable over five years. One has to wonder how the 1% has been arrived at? Is it an arbitrary figure or does it have some relationship to the Laffer curve?
When, decades ago, US economist Arthur Laffer first drew the curve on the back of a napkin as a measure of the optimum tax rate and tax take, he was not contemplating the recovery of billions spent on a coronavirus pandemic. Originally thought of as a measure of the optimum income tax rate, it was not a definitive figure. However, Laffer has since suggested that, for the US, the figure is 13%. Is the 1% tax on wealth such a figure that those who are liable will not bother to find the means of avoidance – as compared, for example, to the position in the mid-1970s when non-residence was an option for those seeking to avoid a maximum UK tax rate of 98% on income?
Given the impact of the coronavirus, many of the world’s governments are struggling with this dilemma – even the Bangkok Post (in a comment article on 23 December 2020) has weighed in with an alternative solution to a wealth tax: ‘Perhaps it would be better to tax those on fixed incomes.’
The UK’s chancellor has his Budget on 3 March when Covid recovery legislation may be revealed. On the other hand, many say it is too early in the pandemic to act hastily. As it is, legislation requires debate before it is enacted giving plenty of time for tax avoiders to put measures in place.
Jon Golding.
Farm staycations and the rise of glamping
With Covid-19 prompting an increase in the number of people taking holidays in the UK, more farmers are looking to set up staycations and ‘glamping’ or ‘glamorous camping’. With the drop in farm subsidies, tourism is a positive alternative subject to lockdowns. Glamping can, for example, take the form of timber lodges, tree houses, yurts and shepherds’ huts. The planning permission for such developments is understood to be favourable when close to a footpath and parish councils are embracing plans to help the UK tourist industry. The tax position is fascinating because moveable tourist accommodation is eligible for the 100% annual investment allowance (AIA) under current rules.
The question then comes to heating that accommodation. It is understood that a company has launched the first remote-controlled micro wind turbine so farmers no longer have to manually switch the turbine off during high wind speeds. There is also a water or space heating micro wind turbine package available, which is the first of its kind because it focuses directly on producing heat either connected to a water tank immersion heater or an electric heating radiator.
With the annual AIA limit of £1m applying until 31 December 2021, work on such projects could be time sensitive. If accommodation qualifies as furnished holiday letting (FHL) there would be restrictions on the loss created. For tax years 2011-12 onwards, these can only be carried forward against future profits of the same FHL business. A UK farming business and a FHL business are treated as separate. Further, FHL losses cannot be relieved against non-FHL property profits (see HMRC’s Property Income Manual at PIM4120). Until 2010-11, such losses could be relieved sideways against general income or chargeable gains, but with the change of rules the losses can now only be carried forward against profits from the same trade.
There will need to be careful tax planning and clear recording between farming, diversification, and tourism activities.
Julie Butler, Butler & Co.
