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Is it really time for a wealth tax?

We find ourselves as a nation facing exceptional circumstances – not to mention exceptional public finances. Just a few recent statistics suffice: a conservative estimate of the overall public finance cost of Covid-19 in the UK is £300bn, according to the Office for Budget Responsibility.

Latest reports show that the UK borrowed £128bn in the quarter to June. The deficit of tax receipts over public spending between April and June was £174bn, compared to £20.3bn for the same period in 2019/20 and far greater than the previous quarterly record of £76.8bn in the fourth quarter of 2009, at the height of the last crisis. Unsurprisingly, Chancellor Rishi Sunak stated on 21 July: ‘I am also clear that, over the medium term, we must, and we will, put our public finances back on a sustainable footing’.

Alongside this there are a number of active tax reviews. Notably, the Office of Tax Simplification (OTS) this month launched a call for evidence to seek views about CGT, focusing both on the principles underlying the tax, and views on the technical and operational aspects of CGT. In addition, the Treasury Committee, appointed by the House of Commons to examine the expenditure, administration and policy of the Treasury and HMRC as well as certain associated public bodies, has launched the ‘Tax after coronavirus’ inquiry. We also have the recent OTS review of IHT, together with the All-Party Parliamentary Group review of IHT.

Last but not least, the Institute for Fiscal Studies (IFS) earlier this month launched an enquiry into the possible introduction of a wealth tax, with a final report expected in December.

All of this leads to the question of what the aims and rationale of the reviews should be.

Capital taxes: policy, principle and pragmatism

Clearly, there is a need to raise additional revenue in the short to medium term. Given the Conservative party’s manifesto pledge not to raise income tax, national insurance or VAT, capital taxes are an obvious way of doing this (although in the current circumstances, there is a good case for saying that the pledge should be revisited).

But before considering whether a new tax is needed, it is worth first reflecting on whether the present UK capital taxes system is ‘fit for purpose’. The recently launched IFS enquiry outlined three principal approaches to taxing wealth, namely:

1. taxing transfers of wealth;

2. taxing returns on wealth; and

3. taxing the ownership of wealth directly.

The IFS identifies that the UK currently taxes both transfers of wealth (through IHT, stamp duty land tax and stamp duty) and returns on wealth (through income tax on dividends, rental income and savings returns, and CGT on disposals of assets). Only the third element is not taxed in the UK, and that is what is being debated as a potential new tax on wealth, i.e. effectively seeking to ensure that wealth not subject to a transaction does not go untaxed.

What is the aim?

When considering reform of the capital taxes system, one must identify one’s aim – which is where it gets interesting and, potentially, problematic. Looking back to the original endeavour to introduce a UK wealth tax by the Labour government in 1974, the party’s manifesto stated: ‘We shall introduce an annual wealth tax on the rich, bring in a new tax on major transfers of personal wealth’. That policy did not appear to take into account the structure of the tax system or address the practicalities of how such a tax would be implemented and administered. In an analysis of why the endeavour failed, the Treasury tax group identified the lack of clarity of the objectives: namely, to achieve equity between taxpayers and to achieve equity in wealth holdings, which are not necessarily aligned.

So before considering whether a wealth tax is a good idea, one should first ask what is and what should be the policy underpinning the present capital taxes system?


Given the piecemeal way in which the UK tax system has been developed, it can be hard to discern an underlying policy. That said, going back to the two ways in which wealth is currently taxed, it is fair to ask whether the UK wishes to consider redistributive taxation through a wealth tax. Even if that is the aim, one must consider if that best serves the UK, something which is especially important in the current economic climate and during a time of Brexit and increased global competition.

A bit of alliteration

From policy flows the question of practicality (how difficult would it be to both implement and administer a wealth tax?) and also of pragmatism (would it be a sensible step for the UK?). And what about the politics: is there as much political support for such a tax as there might at first appear? A 2019 YouGov poll showed 69% of adults agreed that ‘earnings from wealth should be taxed at the same level as earnings from income’. A more recent poll, which excluded the main home and pensions from such a tax, found 61% in favour and 14% against. According to 2019 analysis by the Resolution Foundation, 42% of the rise in wealth over the past decade is linked to rising pension wealth, which is hardly a saleable or commoditisable asset. Policymakers should therefore look very closely both at the extent of the support for a wealth tax and its potential scope. Everyone agrees that we should all pay ‘our fair share’, but we don’t always agree on exactly what that is.


This takes us to practicality. Setting aside questions of political leaning and overarching policy, a key and obvious focus is to ensure that the UK’s tax system serves the interests of the UK in the context set out above. A good starting point would be to meet the criteria set out in the 2011 Mirrlees

Report, namely:

  • first, consider the system as a whole;
  • second, seek neutrality; and
  • achieve progressivity as efficiently as possible.

To these I would add certainty and stability, both of which have been sorely lacking in recent years.


If part of the policy of any capital taxes reform, and especially the introduction of a new wealth tax, is to serve the UK through increased revenue, one has to face the pragmatic issue of whether such a tax would actually achieve this. Labour’s plan for a wealth tax in 1974 was abandoned in the face of objections, including over potential capital flight. More than 40 years later, the practical aspects of valuation and enforcement for such a new tax may be easier; however, the risk of capital flight has increased, as individuals, businesses and capital are now much more mobile. While there are differing views as to the likelihood of emigration and/or capital flight in response to tax changes, it is generally agreed that recent changes to the taxation of non-domiciles, including uncertainty over the non-dom regime and the poor drafting of some aspects of the rules, have made the UK less attractive to potential arrivers and reduced the number of wealthy individuals relocating here. If the UK then added a wealth tax to the mix, there is a real risk that: (i) potential investors and wealth creators would look elsewhere; and (ii) many of the very wealthy individuals who chose the UK as their home would consider leaving.

A range of jurisdictions are developing home grown alternatives to the non-dom regime, including Italy and, more recently, Greece. Conversely, there are very few other jurisdictions which impose a wealth tax. France replaced its ‘impôt sur la fortune’ rules with a property focused tax, and five other OECD countries have repealed wealth taxes over the past 20 years. The main countries which still impose a wealth tax are Spain, Switzerland and Norway. While Switzerland may seem like an outlier, the tax is generally at very low levels and of course exists in a fiscal structure that is otherwise very favourable. It is true that Elizabeth Warren has suggested a wealth tax in the US, but: (i) a proposal and the reality are two very different things; and (ii) the proposed US$50m threshold is so high that only 0.1% of the richest taxpayers would be within its scope.


All of this, in a roundabout way, takes us back to design. Much of the support for a wealth tax focuses on the need to tackle an increase in inequality. It is worth making two points here. First, while concentrations of wealth in the UK have increased among the top 1% (doubling between 1993 and 2005), wealth has also grown more generally (an 83% increase for the bottom 50% over the same period). Second, if a wealth tax resulted in at least some of those who would be subject to it leaving the UK, this shrinks the UK tax base, and everyone loses from that. Of course, ever growing inequality is undesirable and should be addressed, but a wealth tax risks being little more than a sticking plaster that makes matters worse.

Hence the need to focus on design: what is the capital taxes system designed to do, and how can it best do that while also making the UK attractive to investors, entrepreneurs and other wealth creators?

The UK currently taxes two of the three aspects of wealth, and its resulting tax take is near the top of those of G7 countries. It would therefore make more sense to focus on ensuring the taxes on those two aspects that operate effectively, efficiently and fairly. The recently announced CGT review provides an opportunity to reform that tax to encourage investment and business activity, and create greater wealth and opportunity for all. Allied with recent IHT reviews, there is a real chance to make sure our capital taxes do indeed tax capital at the right point and at the right amount – to ensure a decent tax base, and also retain and attract inward investment and talent.

Ever growing inequality is undesirable and should be addressed, but a wealth tax risks being little more than a sticking plaster that makes matters worse.

Let us hope that the Treasury, when reviewing the overall recommendations, is open to ensuring that all reliefs are also carefully reviewed. The ten most expensive tax reliefs cost £117bn a year. As the Public Accounts Committee remarked this month: ‘Tax reliefs have an enormous impact on tax revenue, but it is far from clear whether they deliver the objectives ... they are supposed to support.’ Surely it is worth taking a fresh look at, for example, the automatic CGT uplift on death and how to best encourage business investment (especially given the recent history of entrepreneurs’ relief being particularly messy)? While pensions relief and principal residence relief (PRR) are perceived as being untouchable, it will be interesting to see if there is, for example, a potential rejigging of increasing CGT rates and/or restrictions on PRR.

A careful review of the existing tax system makes more sense than introducing a new tax, which could add more confusion, instability and uncertainty at the time when the UK can least afford it.

Boris Johnson recently declared a Rooseveltian approach, so it is fitting to end with Roosevelt’s views on inequality: ‘The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have little.’

In order to ensure that we can provide for those who need it, a truly effective and competitive tax system is needed which encourages investment and wealth creation, not one with a short-term populist appeal.

This article was first published in the Tax Journal. Please view here.

For more information please contact Sophie Dworetzsky at sophie.dworetzsky@crsblaw.com or on +44 (0)20 7427 6404 

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