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"I worked in banking. This is how to get the wealthy to pay more tax"

In the twelve years I spent working in financial markets, wealth management and tax consulting all over the world, I gained valuable insight into how businesses and rich individuals respond to the incentives that tax systems around the world offer them. More recently, as a teacher, a charity CEO and the Director of the Social Mobility Commission, I’ve seen firsthand the impact that high levels of inequality have on society.

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As a director at a global wealth management firm, that included a Swiss private bank, I often met ultra high-net-worth clients, with at least $25-50 million in net assets. Most sought to minimise their tax liabilities where it was clearly legal and involved limited disruption to their lifestyle. If it was legally or reputationally risky, or hard – such as requiring a move abroad – they were more likely to decide to stay and pay the sticker price taxes. Some were happy paying local taxes on income and capital “in full” since the country had enabled them to generate that wealth. A few, particularly those with fewer ties to the country, sought to pay as little as possible, even when that involved taking risks or moving to a tax haven.

 

One British man I met in Monaco had sold his UK business and was there for five years to avoid paying millions of pounds of UK taxes on his gain. He could still visit the UK but only for a limited number of days each year. When I first went to his apartment, he would stand on his balcony overlooking the harbour, and tell me how lucky he was. The third time we met he told me how much he missed his family and couldn’t wait until he could move back to spend more time with his grandchildren. I’m sure that if the rule had been ten years not five, or he was allowed back in the UK for even fewer days, he would never have left England and paid his taxes there. The set of choices we gave him incentivised him to avoid paying tax here.

In my new role, I looked at how countries such as Switzerland, Australia, Canada, Singapore and Hong Kong tax individuals, and found much that the UK can learn from. In a blog I wrote for Nesta’s UK 2040 Options series, I set out in detail seven ideas that could raise more tax and reduce inequality. Some of the taxes raised could be used to reduce others that distort incentives and create high marginal tax rates as high as 62-70+%, such as the removal of the personal allowance and child benefits for high earners, boosting the economy. 

  • Increase the Stamp Duty Land Tax surcharge for non-UK-residents purchasing UK residential property from 2% to 15%

  • Increase the higher rates of Stamp Duty Land Tax for those purchasing additional existing homes from 3% to 6%

  • Create a new Annual Property Tax on market-based hypothetical rental income, charged to owners of all homes, except UK resident owner-occupiers

  • Prevent individuals with assets in ISAs above £100,000 at the beginning of a tax year from investing in a new ISA that year

  • Create a new Retirement Savings Allowance tax charge on pension assets not converted into an annuity income above £500,000 at age 70

  • Create a new 1% wealth tax charged on net assets above £2 million

  • Create a new British Citizen Tax, mirroring the wealth tax, payable by all wealthy British citizens living overseas.

With tax, the devil is always in the detail. I hope that at least by showing how other countries use similar taxes, it destroys the myth that these taxes are impossible to implement in the UK. And that this brings forward the day we might move to a fairer tax system that creates a more equal society.

John Craven is Executive Officer at System 2. Formerly he was a Director of Global Wealth Management, Bank of America, and was the former Director of the Social Mobility Commission in the UK.

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AUTHORJohn Craven Insider Comment
  • Mo
    MomsBasement
    4 March 2024

    The issue with the UK tax system is that there is no more value which can be extracted from it. We spend too much, and overburden the average individual with obscene levels of tax. With student loans added in, the government takes more than 50 % of my salary as tax, which is why I can't afford to move out of my parents home. I'm 30 years old.


    The problem is we literally just waste money by giving away free handouts in the form of benefits, foreign aid, and funding for weapons for proxy wars in Ukraine.


    There is no social mobility here because eventually you hit a tax ceiling.


    The whole benefits and taxation system it designed to enforce a system of dependence of the population to the state. It's literally just there to suppress achievement and create a cycle of dependency on the state.

  • Po
    Podmore
    4 March 2024

    Multiple studies have shown that when tax rates increase, the take remains static or falls. Have a look, for example, at the relationship between cantonal tax rates and revenue in Switzerland. If the UK is to solve it's current debt spiral then the country needs to become more attractive as a base for the wealthy and successful, not less so.

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