The UK currently taxes capital when you sell an asset at a profit through capital gains tax and on death through inheritance tax which is two out of the three possible capital taxes. With the current economic uncertainty in the UK, will the government introduce the third tax on capital, a wealth tax? It seems unlikely even if it could raise a significant amount of tax revenues.
Many European countries have a wealth tax and a wealth tax can have multiple forms. It can be a one-off levy to help to deal with a specific issue for example in 2011 when Ireland introduced a levy on private pension funds as a response to the financial crisis.
Alternatively, it can be an annual tax such as in Switzerland where each canton levies a wealth tax on net assets of up to 0.3% per annum. Whereas, the French annual wealth tax is only on specific assets such as residential property, as well as shares listed on Euronext Paris.
A wealth tax can also be a one-off levy that becomes an annual tax such as Spain’s Solidarity Tax on large fortunes on net estates over €3.7 million introduced in 2022 as a one-off levy following COVID, that is now a permanent add on to Spain’s existing wealth tax.
A wealth tax is one out of three potential taxes on capital which is why it cannot be looked at in isolation and often makes global comparisons difficult. Switzerland, as an example, does have an annual wealth tax but it does not have a capital gains tax and there are limited inheritance taxes, so although there are annual capital taxes to pay, there are limited taxes when you sell assets or on death. Spain is one of the few countries that has all three capital taxes – capital gains, inheritance, and wealth taxes which, according to the Tax Justice Network[1], is an example of a successful wealth tax system.
What does the Trades Union Congress suggest?
In the UK, the Trades Union Congress (TUC) have consistently called for a wealth tax for example in August 2023 when they suggested a “modest” wealth tax which could raise as much as £10 billion. What is modest in this context? The TUC recommend that the wealth tax starts at wealth in excess of £3 million, excluding pensions at a rate of 1.7% increasing to 2.1% for assets over £5 million increasing to 3.5% on assets over £10 million.
The TUC’s figures indicate that this will only impact 0.3% of the UK population (c. 140,000 taxpayers) for whom less than a quarter of their wealth (excluding pensions) derives from their main home. Whereas the main home typically accounts for the majority of an individual’s wealth for those with estates of less than £3 million, making liquidity to pay the wealth tax more of a challenge.
The union Unite also called for a wealth tax in September 2024 at 1% for assets above £4 million excluding mortgaged property although it is unclear on whether pensions are in or out of scope. Unite estimate that their annual wealth tax would raise £25 billion per year which seems significantly higher than other projections.
