There has been considerable discussion on the introduction of a wealth tax in the UK. The following ‘early day motion’ has been recently submitted for debate in the House of Commons.
“That this House welcomes the proposal from leading tax experts for the introduction of an annual wealth tax of 2% on individual assets over £10m, which could raise an estimated £24bn each year; believes that such a measure would represent a fairer alternative to cuts and could provide urgently needed resources to tackle the poverty and inequality that blights our society; and calls on the Government to bring forward proposals for such a tax on extreme wealth ahead of the next Budget.”
It could be argued that we already have a wealth tax. We have an inheritance tax (IHT) regime which taxes wealth at death. The expansion of this tax to include many business assets, previously effectively exempt, with effect from 6 April 2026 and unused pension funds with effect from 6 April 2027 will mean that few assets will escape the levy.
Throughout the UK we have council tax which is an annual tax on the value of houses and many business premises. It is widely acknowledged that council tax is in need of a thorough overhaul and in June 2025 the government introduced a consultation – ‘Modernising and improving the administration of council tax’. (The consultation does not envisage any significant changes to the scope of the tax.) When the two taxes are combined they have many of the features of a wealth tax.
The Institute for Fiscal Studies (IFS), a respected, influential and independent institution which researches fiscal and economic policy in the UK, holds the view that, “It is difficult to make the case that an annual tax on wealth would be a sensible part of the tax system even in principle. Taxing the same wealth every year would penalise saving and investment.”
The IFS points out that a UK wealth tax would raise administrative difficulties. An accurate valuation of certain assets – shares in private companies, unincorporated businesses, art, antiques – would be difficult to achieve and could involve taxpayers (and HMRC) incurring significant costs.
Within the OECD only Norway, Spain and Switzerland have a ‘full’ wealth tax levied on wealth, in excess of a relatively low threshold. France, Belgium, the Netherlands and Italy levy wealth taxes on selected assets, but not on an individual’s total wealth.
The IFS believes that “international experience of annual wealth taxes is not encouraging: they have been abandoned in most of the developed countries that previously had them”.
Of course many wealthy individuals could avoid the tax, wholly or partly, by emigrating and thus reduce the yield.
The sponsors of the early day motion envisage an annual wealth tax. A ‘one-off’ tax could also be considered and such an approach has been adopted by some countries as a response to the costs of dealing with the Covid pandemic.
What would happen to IHT if a wealth tax was introduced? Consider the situation in which an individual pays a wealth tax and dies the following year with an IHT charge on their estate. Will there be a double tax charge or will the wealth tax paid be credited against the IHT liability? Similar issues could arise where an individual inherits wealth from an IHT paying estate and shortly thereafter faces a wealth tax charge. Does this amount to double taxation?
While nothing in taxes is certain, it seems unlikely that the introduction of a wealth tax would successfully tackle the UK’s fiscal ‘black hole’.
Gerry Brown is trust and estate planning consultant at QB Partners
