The BBC News website tells me that there is an important debate about the fairness of a wealth tax, and offers the views of a KPMG tax partner (anti). To be honest it is news to me that this debate is going on, but as it apparently is I will join in.

Be honest, you were all thinking I was going to say what a fantastic idea a wealth tax is, and the government should introduce one straight away, weren’t you? Well it isn’t and I’m not; it is a terrible idea and one that no-one should touch with a barge pole. And if that was what Nick Clegg was talking about earlier this week then I take back all the nice things I said about him.

Because we already have a wealth tax in the UK, and it is called inheritance tax. It takes the value of everything you have accumulated and paid tax on over your lifetime, knocks off £325,000 and takes 40% of what’s left. There are exemptions, the most important of which are for business and agricultural property, to try to smooth the already tortuous and surprisingly infrequently-trodden path of a successful passage of a business down the generations, but in general inheritance tax is readily recognisable as a wealth tax.

Now it has been suggested that inheritance tax is a voluntary tax, because of the regime of potentially exempt lifetime transfers, which become exempt after 7 years. That presupposes a willingness on the part of taxpayers to divest themselves of large quantities of assets at a time when they have a reasonable expectation of surviving for at least 7 years; if there are many such taxpayers around they are not numbered among our client base, nor would I advise a client to do quite such a rash thing.

Of course the picture may well be different for the extremely wealthy, who for the most part sadly seek their tax planning advice elsewhere than Simpson Burgess Nash, and who can perhaps afford to do without a significant part of their fortune for the latter part of their lives. Even so, they are taking a chance on surviving for 7 years, or potentially surviving for much longer and finding themselves in need of the assets they have given away, to fund care etc. So effective inheritance tax planning by lifetime gift does require a degree of personal financial risk.

The other notable exceptions to this are the non-domiciled. At any point prior to that at which they have been UK-resident for 17 years, or are careless enough to become UK-domiciled prior to that, they can divest themselves of non-UK assets into a trust from which they can benefit personally and place those assets beyond the scope of UK inheritance tax. And of course every well-advised non-domicile with sufficient non-UK assets to make it worthwhile does precisely that, as well as ensuring that they protect their valuable non-domiciled status for as long as possible. I will post separately on where on the avoidance continuum this resides, because that is I think an interesting question.

This ties neatly back into Mike Walker’s comments on a potential wealth tax, and in particular its impact on the non-domiciled, or expatriates as he refers to them. He comes right back to the question of the impact of the tax regime on the residence choices of such taxpayers, who can be taken to have significant international mobility and, it always appears to be assumed, no particular emotional, family, social or other ties to the UK, and again assumes this impact to be potentially decisive in terms of those choices.

I have blogged in the past about the evidence contrary to that assumption, but it would be fair to acknowledge that the tax regime is a factor, if not always the decisive one, in such residence choices. Mike Walker is worried about the impact on the yield from other taxes of expatriates going elsewhere to live, which is fair comment up to a point, although the well-advised wealthy non-domicile will no doubt have most of his or her assets offshore and be paying the remittance basis charge (if resident here for long enough) in order to limit exposure to UK income tax and capital gains tax, so it would be possible to overstate that case.

So the problem in a nutshell is that the only real justification for a wealth tax would be to catch non-domiciles who do not pay UK inheritance tax on their total wealth, but that the perception is that such a wealth tax would drive them away from the UK in droves. And could one justify levying a wealth tax solely on non-domiciles, or perhaps more likely giving a credit for wealth tax paid against inheritance tax liabilities on death, which would be a neater solution?

And then there are the practical problems, which are numerous. It is quite a logistical exercise identifying and valuing all of a taxpayer’s assets on the one-off occasion of their death (I know, I do it on a regular basis); trying to do it at regular intervals for a living taxpayer would be quite an imposition. And if we were to include the non-UK assets of non-UK domiciles, how would we gather the information?

I have always assumed that part of the reason why the non-UK assets, income and gains of non-domiciles fell outside the UK tax net was the sheer practical difficulty of establishing their true size and nature – see the tax case featuring Mohammed Al Fayed for the difficulties facing HMRC in trying to do this, and the far-reaching compromises they were prepared to make to resolve the issue. These problems would of course rear their head equally with a wealth tax.

So realistically a wealth tax is a non-starter. Perhaps the debate we need to have is about the correct balance to strike in the taxation of non-domiciles; the current regime whereby the fabulously rich can effectively buy their way out of the UK tax system for a flat £30,000 or £50,000 annual payment is inherently unsatisfactory, and indeed is arguably legislating for precisely the sort of broad brush approach which got HMRC into such trouble in the Al Fayed case under the old non-domicile regime. So to what extent should we tailor our tax system for the benefit of non-domiciles in order to attract them to reside here? Now that is a question worth debating.