Could taxing the rich be back on the agenda? Business Leader investigates what’s going to happen to our taxes


Ahead of the Budget, Business Leader look at how the government is going to payback all the money it has borrowed to helpscompanies navigate the coronavirus storm. Are calls of ‘tax the rich’ coming back again and what impact could the mooted increase in Capital Gains Tax (CGT) have?

It is an old worn phrase, but it has a certain relevance now more than ever – ‘only two things are certain in life – taxes and death’.

When it comes to the former, the arguments about who should pay what and how much have been debated for centuries. But one thing is for certain and that is that unprecedented changes to how the public and businesses are taxed could be on there way as the government looks to pay back the money it has dished out to businesses in loans, deferred payroll, and deferred VAT.

Such is the task ahead and importance of the subject, Nick Farmer who is an International Tax Partner at Menzies LLP thinks that tax could be back on the front pages of the newspapers soon, in a way that it has not been since the 2008 financial crisis (a more serene time when Brexit and the pandemic were mere glints in the eye.)

Tax is the new darling?

Nick says: Government is shelling out lots of money and the music will stop at some point; we’ll need to raise some money in the future by looking at tax and we’re seeing some signs of where this may go. Rishi undertook a Capital Gains Tax review earlier in 2020 and the outcome of that was potentially to increase income tax rates.

“There has also been an inheritance tax review, with a view to make this more like an estate tax. And on the international stage, lots of countries are introducing a Digital Services Tax. If you look back at the 2008 financial crisis, tax was headline news and I believe this will happen again and we will start to have debates around how this should be paid back, with many pointing the finger at the big multi-nationals and those top earners.”

Certainly, even the mention of an increase in Capital Gains Tax has businesses packing up and going home. An article in The Financial Times on December 31 2020 said that a record number of UK company directors closed solvent businesses in the three months to September, prompted by fears of tax changes and the economic damage wrought by the pandemic.

Figures from The Gazette, the official public record for the UK, found 3,126 businesses voluntarily appointed liquidators during the third quarter of 2020, the highest for any third quarter since 2000. The figure was up 52% on the same period in 2019, when 2,058 businesses voluntarily appointed liquidators. The Financial Times article said that advisers attributed the surge in closures of solvent companies to potential increases in capital gains tax (CGT), concerns about upcoming changes to the off payroll working (IR35) rules and ongoing economic uncertainty.

Tax the rich

However, if the government do decide to refresh the tax system, there will no doubt be calls from many to tax rich individuals and companies like Amazon – who are perceived to have performed well during the last nine months.

Tory grandee John Redwood once famously said that the big ‘experiment’ in the 70s when higher rates of income tax were placed on wealthy individuals resulted in the tax take going down, as the rich fled and found ways to evade and avoid paying the higher rates.

It is an age-old argument that is countered by those that say ‘let them leave’ as there will be enough wealthy individuals and businesses who love their country and are prepared to stay.

Certainly, due to the pandemic and the heroics of many on low wages, the issue of wealthy people paying more taxes could reach a level of emotion and scrutiny it didn’t in the past.

To find out more about what levers government may pull in the future and to what degree business leaders could be in the firing line, Business Leader spoke to Eric Silvestre, CFA Senior Investment Research Analyst at Alpha Portfolio Management.

He said: “The latest estimates suggest the government is expected to spend a whopping £280bn on measures to fight COVID-19 and its catastrophic impact on the UK economy. The latest official figures for October show public sector debt passed the £2tn mark for the first time in history. The Office for Budget Responsibility (OBR), estimates that borrowing will be £394bn for the current fiscal year. That is the highest figure since World War 2.

“Boris has been insistent that there will be no return to austerity, so with tax revenues drying up, what options are there?

“Raising taxes is the most logical option but would be politically awkward. Especially since the Conservative 2019 manifesto promised not to raise the three biggest taxes. These are income tax, national insurance and VAT. Historically, these have accounted for more than 50% of UK tax revenues.

“Recently the Wealth Tax Commission, a study group involving the LSE, controversially proposed a ‘one-off’ wealth tax of 5%. Phased over a five-year period it could raise £260bn to recover the cost of the pandemic. The proposal could affect around 10 million people or one in six of working people with £500,000 or more worth of assets.

“The Commission said the one-off wealth tax would be the equivalent to raising VAT by 6p or the basic rate of income tax by 9p for the same period. Whilst the measure might be one of the least unappealing to the nation as a whole, to a Tory voting middle class or mass affluent it will feel particularly painful, akin to a turkey voting for Christmas.

“Various European countries, notably the French, have tried and subsequently withdrawn variations of wealth tax legislation. UHNW’s (Ultra-high net-woth individuals) tend to be adept at switching domicile to avoid such measures, leading to an exodus of very high tax paying individuals and a shrinking pot of wealthier people.”

Capital Gains Tax

In regards to Capital Gains Tax, Eric comments: “The Chancellor has commissioned a review of Capital Gains Tax (CGT) with a view to identifying opportunities to simplify the tax, but it was already suggested by many as a potential route to increase tax revenues and this review has done nothing to dampen such speculation.

“Over the summer, Rishi Sunak provided us with a ‘heads up’ that changes to the UK’s Capital Gains Tax regime could be on the cards. In July, he contacted the Office for Tax Simplification (OTS). For many years CGT has been pending a wholesale review and has been deemed unnecessarily complex.

“Hiking CGT rates and slashing the CGT allowance are obvious adjustments, but these are not the only options available.  “There are a range of allowances/exemptions and reliefs that could be considered.

“One of the most controversial of these would be adjustments to Principal Private Residence Relief or PPRR. This currently makes the disposal of your main residence exempt from CGT. Again, the political perspective from this could jar with voters as the structural imbalances of the UK housing market could reach a much broader catchment area, impacting those deemed well off who are simply asset rich, but income poor.”

What are the other options?

Everybody will have their view on how the tax system should be structured but as we look to pay back the huge rates of borrowing, could some more left field options make it to the statute book?

One such new tax that has been touted is the ‘homeworking tax’. Deutsche Bank is proposing a 5pc levy for those who choose to work from home outside of lockdowns stating that working from home is a ‘privilege’.

Following the rise of homeworking and statements from companies like Twitter that their staff can work from home indefinitely, does the proposal have legs?

Angela Love, Director at Active Workplace Solutions, comments: “There is simply no logic to Deutsche Bank’s proposal to tax people working from home between lockdowns. Where were these suggestions when people were working remotely pre-pandemic? Home workers are not makeshift units to be taxed, they are real people who have gone through an awful lot of upheaval in 2020.

“I completely support searching for measures to help vulnerable jobs but taxing home workers is not the way. You have to also consider the reasons why some people are working from home. Some will have their own health reasons, others may share a property with someone who is vulnerable therefore won’t risk the commute. Whilst we can’t deny that some workers and demographics have wonderful settings in their home working environment in order to work productively, others do not.

“Yet, despite that, they will continue to work from home to keep them and others safe. And that’s admirable. Taxing them for making that call is wrong. Even after COVID-19, some people will still work from home, regardless of whether they actually want to or not. Punishing them for it will only deepen the wound financially and emotionally and this will result in other major long-term effects.”

Deutsche Bank Research suggests a tax of 5pc of a worker’s salary if workers choose to work from home when they are not forced to by the current pandemic.

The tax would be paid for by employers and the income generated would be paid to people who cannot work from home.

This could earn $48bn (£36bn) if introduced in the US and would help redress the balance, the bank says (according to the BBC).

Deutsche Bank strategist Luke Templeman comments: “For years we have needed a tax on remote workers. COVID-19 has just made it obvious. Quite simply, our economic system is not set up to cope with people who can disconnect themselves from face-to-face society.

“Those who can work from home receive direct and indirect financial benefits and they should be taxed in order to smooth the transition process for those who have been suddenly displaced.”


It’s pretty clear that the debate is starting, so don’t be shocked if you start to see tax hitting the front pages again; as businesses and individuals find out that tax is indeed a certainty in life – and whatever the structure, it never seems quite fair.