Why we need to tax wealth

The UK is facing a crisis of inequality - with 50 families owning more wealth than the poorest half of the country combined. As the recent Radix webinar on wealth inequality highlighted, extreme hoarded wealth and widening wealth inequality is not just harmful for our communities - it is undermining democracy, holding back the economy and fuelling climate change. There is also a clear link between rising inequality and an unaffordable cost of living, with support for far-right politics. 

To make matters worse, the Fairness Foundation and the IMF found evidence that widening wealth inequality, driven in part by our dysfunctional tax system, is bad for economic growth. This results in socio-economic exclusion for the least well off, reducing consumer spending power, which has knock-on effects on contributions to the wider economy. 

Currently, the tax system is balanced in favour of the super-rich, which fuels this inequality. Wealth is rarely taxed effectively, due to a myriad of unfair loopholes, and far lower rates of tax on income from wealth than work. The average person with total income of £10 million (likely made up from a mixture of sources such as dividends, capital gains, etc) has an effective tax rate of around 21%. This is likely to increase given the changes to Capital Gains Tax at the 2025 Budget, but nonetheless the effect tax rate will remain far lower than the 45% higher rate of income tax. 

Super-rich individuals and corporations are also driving the climate crisis through excess consumption, extraction and harmful investment choices. Yet ordinary people bear the brunt, facing flooding and rising energy prices. According to Global Witness, climate change costs each UK household £3000 a year.

Regardless of one's political leanings, it's clear that we need to tackle spiralling inequality. Many campaigners have called for the introduction of a wealth tax to tackle this inequality. This blog seeks to answer the challenges posed by Liam Byrne, George Freeman and Vicky Pryce in Radix’s recent webinar on wealth inequality - how could you practically design and implement a wealth tax in the UK? 

What is a Wealth Tax?

There are lots of ways of taxing wealth out there. For instance, there are property taxes, Capital Gains Tax and Inheritance Tax, that the UK has in place already. Outside of the UK, some countries operate Land Value Taxation. Despite there being some mechanisms already in existence for taxing forms of wealth in the UK, many come under criticism as a result of their dysfunction. As part of our campaigning, Tax Justice UK advocates for wholesale reform of the way wealth is taxed in the UK to ensure that the super-rich pay their fair share, so that everyone benefits.

One of the primary mechanisms to achieve this is through an annual Wealth Tax. Tax Justice UK specifically advocates for the introduction of a modest 2% wealth tax on individuals with net assets worth over £10 million. This would mean that someone with net wealth of £11m would pay £20,000 a year (2% on the amount above £10m), whilst someone with £11m in assets but debts worth £2m wouldn’t pay. To put it clearly, if you had net wealth of less than £10m you would not pay a penny extra.

Set at this level, it would result in only around 25,000 people paying the tax, yet would generate an estimated £24bn a year in revenue for the Treasury - equivalent to around a 3% rise in all bands of Income Tax. It would take several years to build up the UK’s institutional capacity to implement a Wealth Tax. This means the revenue and number of people eligible to pay will likely have increased, although not by an amount significant enough to make the administration prohibitively difficult. 

What Needs to Be Done

We couldn’t implement a wealth tax in the UK tomorrow - no serious advocate says we can. As Radix heard on their recent webinar, there are many technical and administrative barriers that need to be overcome. The Wealth Tax Commission estimated in 2020 that setting up a wealth tax would initially cost £579 million. Once operational, they estimate around 5% of tax returns would be audited to ensure compliance, at a cost of roughly £2,500 per return. The commission proposed that operationalising an annual wealth tax would take 2-3 years after announcement by the Chancellor. 

In order to equip government institutions with the right tools and skills to collect the tax, a number of them would require increased capacity and reform. These are principally HMRC, Companies House, the Land Registry and the Valuation Office Agency. We would also need  better linking up of data between departments, a well known problem in Britain. Combined, this would be a new Domesday Book - fit for the modern age.

HMRC is currently under-resourced and understaffed relative to its essential role in collecting tax and closing the UK’s tax gap. The National Audit Office and the Public Accounts Committee have both published reports highlighting departmental failures - including lack of staff, data, resources and the disbanding of the High Wealth Unit in 2017. We’ve seen the devastating consequences of cutting staff from tax administration in the United States. To ensure we avoid these mistakes, get our tax system working and make a Wealth Tax possible (alongside a litany of other co-benefits), we need to make serious investment in the UK tax authority. 

To begin with, the department needs additional well paid staff with specific expertise in tax affairs of the super rich. There should also be restoration of a previously disbanded dedicated High Net Wealth Unit and resources directed towards properly tackling the offshore tax gap - which experts suggest is hugely misunderstood and underestimated. Too often, officials at HMRC, and indeed other government departments, leave for the private sector in order to receive remuneration equal to their skills and experience. This needs to be addressed so that skills and institutional knowledge are retained.  

Additionally, the UK should start regularly revaluing homes and property like almost every other OECD country does. This would have the co-benefit of enabling reform of Council Tax, largely regarded as an outdated, unfair and broken system, which Byrne highlighted as a key tax for reform. Further to this, it would also facilitate reform of other taxes with high levels of dysfunctionality such as Stamp Duty and Business Rates systems.

To properly tax extreme wealth and tackle the UK’s dirty money problem, we need greater transparency in ownership of business and financial assets, as well as land. The Land Registry remains incomplete, and Companies House needs to further develop its capabilities and systems to properly enforce and verify the stricter requirements on ownership and director identities introduced in 2024. There is also a pressing need for transparency in Britain’s Overseas Territories, like publicly accessible registers of beneficial ownership, and for greater transparency in property ownership in the UK - with major capability and legislative gaps at HM Land Registry and Companies House. 

Critics of wealth taxes suggest it's hard to place monetary value on things that aren’t publicly or regularly traded, like art, private limited companies, antiques, jewelry, or classic cars. This was raised by Byrne and others as a major barrier to implementing a wealth tax. In fact, this is relatively easy - almost everything of substantial value can be valued, and is - on a daily basis. For instance, banks and finance firms offer loans against artwork and antiques, that are also given valuation by insurance companies. If banks and insurers can assess the value of a billionaire's Picasso painting, it is an easy enough task for the government as well if given more resources. In fact, HMRC already has a system of self-declaration for the purposes of inheritance tax to value estates of people who have passed away. This process can be learned from, and built upon, for a Wealth Tax. 

Even if you’re yet to be convinced about the desirability of a wealth tax - fixing the UK’s institutions is essential to ensuring our existing taxes work better and the right tax can be collected from the richest. This is the only way the government will stand any chance of closing the eye-watering tax gap - which estimates suggest sits somewhere between £46bn and £100bn. 

Learning Lessons from Abroad

Critics of a wealth tax frequently cite France as proof they do not work, given it is a comparable size European economy (both in population and GDP). France abandoned a long running wealth tax in 2017 due to difficulties in collecting the tax, low revenue and political unpopularity. 

The tax implemented in France is vastly different to the policy Tax Justice UK proposes for the UK. The French tax had a low threshold, applying to all households owning assets in excess of just €1.3 million. This meant there were around 343,000 households liable to pay the tax. The comparatively high threshold proposed for a wealth tax in the UK (£10 million) would ensure only a tiny proportion of the population are impacted - just 25,000 people, around 0.04%. This would also make it far less complex and costly for HMRC to administer and limit the need for exemptions and loopholes. Exemptions were a significant issue in France, where badly designed loopholes enabled avoidance and limited the tax’s revenue potential.

In Europe - Spain, Norway and Switzerland have net wealth taxes which enjoy broad support domestically and raise significant sums of money. Other countries like The Netherlands have taxes on specific forms of wealth. France’s experience shows how not to design a wealth tax, not that wealth taxes don’t work. There is a vast resource of experience, knowledge and learning to draw upon for the design of an effective wealth tax for the UK.  

What about other ways of taxing wealth? 

As mentioned earlier, there are lots of other ways of taxing wealth. Property and land taxes are often cited as the best way to tax wealth. After all, you can’t move property or land overseas. Avoidance and evasion are very difficult, and as land is finite, the behavioural impact of taxing land is minimal. 

Tax Justice UK supports progressive property tax reform and complete overhaul of the Council Tax System, but on its own this is not an effective mechanism for taxing the wealth of the very richest. The wealthiest 0.1% hold less of their wealth in physical assets like land and property than any other group, aside from the poorest who own very little by virtue of being unable to afford it. As far as taxing extreme wealth goes, we need to take a much bolder and more holistic approach. 

Conclusion

Support for a Wealth Tax is growing - with major unions, leading economists and think tanks joining the call to tax wealth more. In parliament, Labour, Liberal Democrat, Green, Plaid Cymru, SNP, SDLP, Alliance and independent MPs have all supported motions calling for the introduction of a 2% Wealth Tax on those with wealth over £10 million. The public agree - 75% support the introduction of the tax, as do 80% of UK millionaires themselves. 

With ever growing support for taxing wealth more, alongside an ongoing cost of living crisis, rising international tensions, climate change and threats to global democracy, policy makers need to start listening to what people want, and seriously thinking about how we can tax the wealth of the richest in society. 

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