This is due to the higher taxes people face for working as opposed to the levels needed to be paid on wealth made through inheritance and investments, according to the Institute for Public Policy Research‘s (IPPR’s) report Supporting the Status Quo.
As it stands, the standard inheritance tax is 40% above an estate worth £325,000, whereas the same rate is applied for higher taxpayers who earn between £50,271 and £125,140 per year. This rises to 45% for earnings above that annual salary.
In the current tax system, those living in London and the South East of England are more likely to benefit, with people living in the North forecast by the report to hold £210,000 less wealth than someone living in the South East by 2030.
That gap was £105,000 from July 2008 to June 2010 between the North and the South, and it is projected to reach £190,000 by the end of this year, the Office for National Statistics’ (ONS’) analysis finds.
‘Wealth’ is defined by the charity as financial assets, property, possessions (such as antiques and vehicles) and pension pots.
Wellness and wellbeing holidays: Travel insurance is essential for your peace of mind
Out of the pandemic lockdowns, there’s a greater emphasis on wellbeing and wellness, with
Sponsored by Post Office
Around 40% of non-pension investment income in the UK is generated in London and the South East, which is more than a quarter of the population who reside there.
Differences in dividend and income tax
Dividend tax (paid at 8.75%) is one area that sees a lower rate of tax paid than for labour, which is 28%. This difference decreases for the equivalent higher rates, standing at 33.75% for dividends and 42% for work.
Based on an example of two people, one earning £40,000 through work only and one earning £35,000 through work and £5,000 in dividends, there was a difference of £1,000 more paid in tax through earned income.
Another tax contributing to an inequality in regional wealth is council tax, which differs between London, the South East and the rest of the UK.
The proportion of council tax paid compared to the total property value is 0.3% in London and around 0.48% for the East of England.
However, in Scotland and the North East, this rises to almost 0.9% for both regions.
The charity described this as “a highly ineffectual, poor imitation of a wealth tax, making those in lower-value homes pay relatively more”. It recommended reforming council tax with a new proportional property tax, which takes into account higher levies for unused, empty homes.
An area that could contribute to a reduction in wealth inequality is the tax on profits from being a landlord. This is due to buy-to-let (BTL) properties being more prevalent in the South East than in the North East.
Around one in 13 households had a BTL property in the South East, where only one in 30 was a landlord in the North East.
The additional tax paid on rental income of £120,000 for a landlord with £40,000 worth of profits is £15,752 more than if that had been based on additional earnings.
While the current levels of the wealth tax were called on to be reformed by the IPPR, Brits paid a record £6bn in inheritance tax as more families were dragged into paying the levy, Government statistics found.
Further, the number of working people who paid dividend tax will be more than double the amount compared to 2021/22. Nearly four million self-employed workers and shareholders will pay the tax this financial year, contributing to £18bn in tax paid to HMRC.
This is due to the threshold falling from £2,000 to £1,000 in April 2023 and then to £500 in April 2024. Former Chancellor Jeremy Hunt announced cuts to the tax-free dividend allowance during his Autumn Statement in November 2022.
‘Tax system is one of the most significant barriers to levelling up’
Marcus Johns, IPPR’s North senior research fellow, noted “the tax system’s bias towards wealth is one of the most significant barriers to levelling up that we face”.
Johns said: “Our research shows that we undertax income from wealth compared to income from work, and this special treatment benefits people living in the richest parts of the country like London and the South East. This is not just unfair, it’s a handicap on our efforts to rebalance wealth and opportunity between the regions.
“The evidence shows that 60% of all private wealth in the UK is inherited rather than accumulated through work. That means people who inherit very little, or nothing, face an uphill task to build the wealth needed for a comfortable lifestyle.”
He added: “We need to level the playing field on tax, to reflect the value we place as a society on work and productive wealth creation as opposed to wealth extraction.”
