The size of the current budget gap facing the UK government is subject to debate. Two recent articles from the Guardian and the Telegraph, appearing just a week apart, disagreed by 100%, with figures ranging from £20 billion to £50 billion. Regardless of the exact amount, additional revenue may be required to address fiscal challenges.
Following recent changes to winter fuel payments and adjustments to welfare policies, discussions around a potential “wealth tax” have gained attention.
A wealth tax is a tax charged on an individual, household or entity’s net worth. This includes the total value of assets such as property, investments, savings and valuables. Current proposals spotlight those with a net worth of £10m+ and look to tax wealth above this level at a relatively high rate of 2%, something that a YouGov poll suggest 75% of adults would support.
This raises questions about the likelihood of a wealth tax being introduced, its possible structure, and the factors that could influence government decisions. So, is the introduction of a wealth tax just a matter of time, what might it look like, and what are the factors that could yet dissuade the government?
Keep reading to find out.
A wealth tax survey suggests an appetite for its introduction
Several public figures, including former Labour leader Neil Kinnock and former shadow chancellor Anneliese Dodds, have expressed support for a wealth tax. The YouGov poll of 4,142 British adults revealed
- 49% “strongly” supported its introduction
- 26% “somewhat” supported it.
On the other side of the coin:
- 13% opposed a wealth tax
- 7% somewhat opposed
- 6% strongly opposed.
Interestingly, support appeared balanced across genders, while opposition was more prevalent among men and older age groups. Political affiliation also played a role, with stronger support among Labour voters.
Although Rachel Reeves previously ruled out a wealth tax in August 2023, the concept continues to be discussed, especially among Labour backbenchers on the left of their party.
While recent government feeling suggests a wealth tax might be back off the table for now, the question is: for how long?
The government would likely face several significant problems if it looked to implement a wealth tax
Back in our Winter 2024 edition, we asked whether expert tax advice could prevent a UK millionaire exodus as tax changes threatened high net worth individuals’ (HNWIs) financial security.
At that time, the Adam Smith Institute predicted a drop of 20% in the share of the UK population who are millionaires by 2028. Talk of a wealth tax will have done nothing to stem the tide of millionaire leavers. And it is here that the government has a problem.
Millionaires who leave take their money with them, and tax revenue and investment growth are crucial to the government’s for this parliament.
Which leads to another problem.
A wealth tax could disproportionately affect individuals who own valuable assets but have limited liquid income. We have seen a similar response from farmers to the changes in Business Relief and Agricultural Property Relief that were announced in the 2024 Autumn Budget.
A wealth tax could again affect farmers as well as elderly homeowners in high-value areas and small business owners with capital tied up in operations. Without exemptions or options to pay a wealth tax by instalments, these individuals may be forced to sell assets to meet tax obligations.
Implementing a wealth tax would therefore likely require significant planning and infrastructure, making immediate adoption unlikely as there would likely be legal, logistical, economic, and political challenges.
Implementing a wealth tax requires accurate, up-to-date valuations of diverse asset classes—such as private businesses, farmland, intellectual property, and artwork. These are notoriously difficult to appraise and may lead to disputes with HMRC. HMRC’s current infrastructure is geared more toward income and transactional taxes, not wealth monitoring. A shift would require significant investment in technology, staffing, and training
While a tax on wealth above a certain threshold has been proposed, it may not address short-term fiscal needs. So much so that even an announcement at the Autumn Budget, for example, would likely mean its introduction was still years away.
According to the YouGov poll, any tax that did come in would likely be a percentage on wealth above a certain threshold, but a future tax won’t solve the hole in the public finances now.
So what can the UK learn from wealth taxes in other countries?
The international experience with wealth taxes presents a varied picture. While some countries continue to apply them, many have repealed such measures due to practical and economic concerns. Below is a summary of current approaches:
Country | Rate | Key Observations |
Spain | 0.2% to 2.5% | Spain maintains a wealth tax on net assets above €700,000, though exemptions vary by region—Madrid residents, for example, receive a full exemption. The tax has faced legal and political scrutiny. |
France | 0.5% to 1.5% | France initially taxed net assets above a threshold, but over time, concerns about capital flight and limited revenue led to its replacement in 2018 with a narrower tax focused on real estate. |
Colombia | 0.5% to 1.5% | Colombia’s wealth tax applies to assets above COP 3.5 billion (~£650,000). Challenges include underreporting, reliance on tax havens, and difficulties in asset valuation. |
Norway | 1% to 1.1% | Norway’s wealth tax applies to net wealth above NOK 1.76 million (~£125,000). It is broadly accepted due to its long-standing presence, though some argue it may discourage investment and entrepreneurship. |
Switzerland | 0.05% to 1% | Switzerland levies wealth tax at the cantonal level, with rates and thresholds varying by region. Its success is attributed to low rates, local administration, and predictability. |
The global experience suggests that successful implementation of a wealth tax depends heavily on its design and administration. Poorly structured taxes may lead to unintended consequences such as capital flight, underreporting, and minimal fiscal impact. Conversely, models like those in Switzerland and Norway show that low-rate, broad-based, and locally administered systems can be more sustainable—though not without debate.
What other potential tax changes might be more likely in the short term to fix the revenue gap?
However large the chancellor’s budget deficit actually is, it looks increasingly likely that more tax rises are in the offing with Keir Starmer being unable to rule it out earlier this month.
While it was a Labour manifesto promise not to raise Income Tax, employee National Insurance (NI) or VAT, the government did press ahead with rises to employer NI, and other tax changes do seem imminent.
A likely outcome is more stealth taxes, such a freeze on tax bands such as the personal allowance and higher rate tax thresholds. We are also seeing more speculation about reform of existing allowances and reliefs with a possible reduction in the Cash ISA component of the £20,000 annual allowance, pushing more savers to investments or exposing more interest to taxation.
One area where changes could occur – and in a way that wouldn’t break that manifesto promise – is Capital Gains Tax (CGT).
Proposals to align CGT rates with Income Tax bands have been discussed, which could increase tax liabilities on gains. However, reductions in the Annual Exempt Amount—from £12,300 to £3,000 over four years—have coincided with a decline in CGT receipts, highlighting the complexity of balancing revenue generation with taxpayer impact.
Get in touch
As always with proposed changes to tax and legislation, it’s vital to keep your long-term plans in mind. Speculation is rife, but acting hastily could prove detrimental to your ability to reach your goals.
We’re on hand to keep abreast of changes and will let you know when they move from rumour to policy, and by so doing, potentially impact your wealth.
If you have any concerns about a future wealth tax, though, or any other aspect of long-term plans, please get in touch.
Contact us online or call 020 7400 4700.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
