Before the 2019 general election, the Guardian reported that a Jeremy Corbyn-led government “was viewed as a far greater threat to the wealth and quality of life of the richest 1% than a hard Brexit”.
The prospect of a “wealth tax” to tackle growing inequality has yet to gain traction in the UK – but could this be about to change?
In its latest Tax Policy Reforms report, the Organisation for Economic Cooperation and Development (OECD) points to the rise in countries across the world implementing tax rises on the very rich.
The OECD says: “Some countries […] increased the tax burden on the most well-off individuals through higher rates on the capital and salary income of top earners and by raising net wealth taxes and recurrent taxes on immovable property, continuing the trend of countries seeking ways to increase the progressivity of their tax systems to address rising levels of inequality.”
So, could the UK be next?
Wealth taxes growing in popularity around the world
Wealth taxes can take a range of forms. Often, they can be levies on property or asset value, or so-called “solidarity taxes” designed to target inequality.
The Telegraph highlights some recent examples from around the world.
- Spain imposed a temporary “solidarity tax” for 2022 and 2023 on residents worth more than €3m (£2.6 million) to help the government cope with the cost of living crisis.
- Chile has introduced an annual 2% tax on certain luxury goods held in the country, such as yachts, automobiles and helicopters.
- In November 2022, Colombia approved a bill establishing a permanent wealth tax for individuals with a net worth over approximately $642,000 (£515,000). The levy taxes individuals at between 0.5% and 1%, with a higher 1.5% rate applying until 2026.
Some countries also made changes to their existing wealth taxes.
For example, earlier this year, Norway increased its higher rate for those worth between NKR 1.7 million (£130,000) and NKR 20 million (£1.5 million) from 0.95% to 1%.
The OECD reports that many other governments also introduced property tax reforms, by raising top property tax rates or targeting individuals who use property as an investment vehicle.
A wealth tax could target total asset value
In an August 2023 paper designed to “kickstart the conversation”, the Trades Union Congress (TUC) showed that a modest wealth tax on the richest 140,000 individuals – around 0.3% of the UK population – could deliver a £10.4 billion boost for the public purse.
The analysis set out options for taxing the small number of individuals with wealth over £3 million, £5 million, and £10 million, excluding pensions.
The proposals were based on:
- A wealth threshold of £3 million with a marginal tax rate of 1.7% would yield £2.7 billion (with the tax payable on wealth above £3 million by 142,000 individuals or 0.27% of adults in the UK)
- A further wealth threshold of £5 million with a marginal tax rate of 2.1% would yield an additional £3.2 billion (with the tax payable on wealth above £5 million by 48,000 individuals or 0.09% of adults in the UK)
- A further wealth threshold of £10 million with a marginal tax rate of 3.5% would yield an additional £4.6 billion (with the tax payable on wealth above £10 million by 17,000 individuals or 0.02% of adults in the UK).
The tax would apply as a marginal rate in the same way that Income Tax works. For example, someone with £3 million wealth would pay nothing while someone with £4 million wealth would pay the tax on the £1 million of their wealth above the threshold – paying £17,000.
However, critics of such a plan say that it would be expensive and difficult to administer. It could also potentially target “asset rich, cash poor” people – especially those with a valuable home in London or the south-east.
Could the “windfall tax” be a template for how a wealth tax might work?
In May 2022, the then-chancellor, Rishi Sunak, introduced a 25% windfall tax on energy companies (the “Energy Profits Levy”) in a response to soaring oil and gas profits.
Jeremy Hunt increased this to 35% in January 2023 and, according to the BBC, this windfall tax raised £2.6 billion in the 2022/2023 tax year.
Despite both the Conservatives and Labour stating that they would not introduce a wealth tax if they win the next general election, could either administration be prepared to levy taxes designed to redistribute wealth and ease the cost of living crisis?
This windfall tax could provide a model for a potential wealth tax and give some insight into how the government might approach or justify it.
For example, just as the windfall tax on energy companies is in place for a limited time (the tax will end if oil and gas prices fall below a certain level for six months) the government could introduce a wealth tax for a defined period. This might be until inflation or interest rates fall below a certain level.
Research shows that there is strong public support for a wealth tax
While it seems there is no appetite from either Rishi Sunak or Keir Starmer to implement a wealth tax, recent research reported by the Wealth Tax Commission shows that a majority of people support additional taxes on the wealthy. The survey found:
- 63% of people support increased tax on wealth above a £750,000 threshold (excluding pensions and main residences)
- 72% of people support adding more Council Tax bands for expensive properties
- 70% of people support a “mansion tax” for expensive properties.
With widespread popular support, could the time be right for a new administration to levy a Spain-style “solidarity tax” on the very wealthiest?
Get in touch
Tax efficiency is one of the key considerations when it comes to growing your wealth. If you want to explore how to build a tax-efficient portfolio designed to help you achieve your financial goals, please get in touch.
Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
