Further, a wealth tax could cost the government £600m to set up, with ongoing compliance and administrative costs on taxpayers of £700m a year or more. Administrative costs are a key reason why so many countries have abandoned wealth taxes, and why the Labour government of the 1970s which promised a wealth tax never delivered it.
“There is clear evidence that a recurring wealth tax would be economically damaging to the UK,” Oliver Jones, Head of Asset Allocation at Rathbones Group and lead author of the analysis says.
"Such a tax would require annual valuations of complex and illiquid assets - including private businesses, art, and intellectual property - for thousands of individuals. This process would be costly to administer, difficult to enforce, and could create significant economic distortions.”
A wealth tax may also encourage people to relocate or shift their holdings into assets treated more favourably - or exempt - from the tax. Rathbones estimates that a least £100bn in assets could move abroad or into less productive forms if a wealth tax is imposed - based on analysis of official UK economic data and a study on the impact of wealth taxes.
Simon Bashorun, Head of Advice at Rathbones Private Office, says: “Changes to the non-dom regime have already slowed the influx of the super-rich - and a wealth tax risk accelerating an exodus of wealthy individuals from the UK. We have highly paid professional clients now looking to relocate to more tax-efficient jurisdictions like Dubai or Singapore. Many others may simply decide not to come here in the first place. In a world where countries are constantly competing to attract wealthy individuals and their tax dollars to bolster economic growth - something the UK is crying out for - we seem to be making it harder for ourselves to win,”
Unlike inheritance tax, which is levied at death, a wealth tax demands constant monitoring - even for those who ultimately owe nothing. Rathbones also notes that, since over a quarter of the UK’s billionaires, and an even higher proportion of the very richest, are foreign nationals there is a high risk their flight will diminish the ongoing value of any wealth tax.
Learning from international experience
Analysing wealth taxes in the three high-income countries where they are currently implemented (Spain, Norway, and Switzerland) economists at Rathbones conclude that international experience offers little encouragement.
Since the 1990s, the number of rich countries levying wealth taxes has fallen by three-quarters, from twelve to just three. Spain and Norway raise comparatively little revenue through their limited wealth taxes, far less than UK advocates anticipate. Only Switzerland raises significant revenue from wealth taxation, but its entire tax system is structured differently, with minimal taxes on income, dividends, and inheritance.
After France announced in 2017 that it would replace its wealth tax with a property tax, the number of eligible taxpayers leaving the country fell to its lowest annual rate since 2005. And the number of wealthy taxpayers returning to France increased, rising to nearly 250 in 2018 from around 100 before the reform.
Alternatives to a wealth tax
With a fiscal shortfall estimated between £20–£50 billion, the Chancellor could explore property-based taxation as a more viable alternative, according to Rathbones researchers. Proposals reportedly under consideration include further reform of council tax to better reflect current property values:
• National Insurance on rental income and / or
• Replacing stamp duty with an annual property levy
Oliver Jones says: “Alternatives to a wealth tax might include further changes to inheritance tax, following the reduction of various exemptions in the 2024 Budget. That would be cheaper and less damaging to implement. However, raising inheritance tax rates could be very challenging politically, given the evidence that it is an especially unpopular tax.”
Read Rathbone’s analysis of wealth taxes here
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