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As the Chancellor faces mounting pressure to address a fiscal shortfall ahead of the Budget, an economic analysis of previous wealth taxes by Rathbones, suggests that more than £100bn of wealth could shift overseas, or into less productive assets, if a wealth tax were imposed here.
The wealth-and-asset-management firm also says that a wealth tax could cost the government £600m to set up, with ongoing compliance and administrative costs to taxpayers of £700m a year or more. It cites these as a key reason why 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,” said Oliver Jones, head of asset allocation at Rathbones Group and lead author of the analysis:
“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.”
Rathbones also estimates that at least £100bn in assets could move abroad or into less productive forms, if a wealth tax were 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, commented: “Changes to the non-dom regime have already slowed the influx of the super-rich – and a wealth tax risks 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,” Bashorun added.
From 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 12 to 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.
With a fiscal shortfall estimated between £20–£50bn, the Chancellor could explore property-based taxation as a more viable alternative, according to Rathbones researchers.
Oliver said: “Alternatives to a wealth tax might include further changes to inheritance tax (IHT), following the reduction of various exemptions in the 2024 Budget. That would be cheaper and less damaging to implement. However, raising IHT rates could be very challenging politically, given the evidence that it is an especially unpopular tax.”
Photography: Rathbones, of Oliver Jones
