Amid ongoing debate about how best to fund public services and address inequality, the idea of a UK wealth tax has returned to the spotlight.
If you’ve built up assets through property, investments, or business ownership, it’s natural to wonder what this might mean for you. While no decisions have been made at the time of writing this article, understanding how a wealth tax may work and how it could affect your financial plans can help you stay one step ahead.
What is a wealth tax?
Unlike income tax, which applies to your earnings, a wealth tax could be based on the value of everything you own (such as property, investments, savings and other assets) after deducting any debts.
It’s designed to target long-term, accumulated wealth. The UK doesn’t currently have a formal wealth tax, but taxes wealth in other ways like Inheritance Tax, Capital Gains Tax, Council Tax, and taxes on savings and dividends.
How could a UK wealth tax work?
Several proposals have been discussed in recent years:
- A one-off levy: In 2020, the Wealth Tax Commission proposed a one-time 5% tax on individual wealth above £500,000, payable over five years. This could raise an estimated £260 billion.
- An annual charge: Some MPs have called for a 2% yearly tax on assets above £10 million, which could generate around £24 billion a year.
If introduced, it’s likely that individuals would report their total assets through self-assessment, which is similar to how Capital Gains Tax is declared today.
How do other countries approach wealth taxes?
Several countries have introduced some form of wealth tax, but their experiences highlight just how complex and difficult these taxes can be to design and enforce.
- In Spain, a progressive wealth tax of 0.2% to 3.5% applies to assets above €700,000, but there are wide regional differences, and some areas (such as Madrid) apply full exemptions, undermining consistency.
- Norway taxes net wealth above NOK 20 million at 1.1%, yet valuations of unlisted shares and business assets often create disputes and drive demand for exemptions.
- France previously had a broad wealth tax but found it difficult to administer and economically disruptive. It was eventually replaced with a narrower 1.5% tax on real estate wealth over €1.3 million.
- Switzerland applies wealth taxes at the cantonal level, meaning tax rates, exemptions and enforcement vary widely by region, adding complexity and inconsistency across the country.
While these examples illustrate that wealth taxes have been introduced in other countries, they also reveal the recurring difficulties (like accurate valuations, fair exemptions, regional disparities and administrative burden) all of which limit their long-term effectiveness.
What’s the case for and against a wealth tax?
The idea continues to generate debate, with both supporters and critics presenting strong views.
Supporters argue that a wealth tax could:
- Raise significant revenue to fund essential public services.
- Help address widening wealth inequality.
- Focus on long-term, accumulated wealth rather than short-term income fluctuations.
- 77% of UK adults would prefer higher taxes on the wealthiest over cuts to public services.
- 78% of UK adults also support a 2% tax on assets over £10 million.
There’s also evidence that reforming existing taxes on wealth could make a meaningful difference. The Taxing Wealth Report 2024 suggests that adjustments to Capital Gains Tax and pensions tax relief, among other measures, could raise up to £90 billion annually.
Critics, on the other hand, highlight several practical concerns:
- Valuing certain types of wealth, such as private businesses or property, can be complex, subjective, and expensive.
- There’s a risk of capital flight, where individuals move assets offshore to avoid taxation.
- Wealth taxes may disproportionately affect those who are “asset rich but cash poor”, such as retirees with valuable homes but limited income.
What does this mean for you?
At this stage, a UK wealth tax is only a concept. Change could come via other means, such as reforms to existing taxes or reliefs.
If you’ve built up wealth through your home, investments or business, early planning can help you prepare for a range of outcomes. By reviewing your arrangements now, you’ll be better placed to make informed decisions, whatever direction future policy takes.
There are a few practical steps you can take:
- Review your portfolio: Is your wealth structured in the most tax-efficient way?
- Plan ahead for succession: Gifting, trusts and family investment companies can help pass on wealth more effectively.
- Maintain liquidity: Ensure your assets aren’t all tied up in ways that are hard to access if changes occur.
- Stay informed: Tax policy often shifts around Budgets or elections, so being proactive can help you stay in control.
Planning with confidence, whatever comes next
Tax rules may evolve, but with the right advice and a clear plan, you can continue to move forward with confidence, whatever the future brings.
At Flying Colours, we help you make sense of the financial landscape, whatever it looks like. From structuring your assets efficiently to planning for future generations, our advisers are here to provide clear, personalised guidance and advice that puts your goals first.
Whether you’re looking to protect what you’ve built, reduce your tax exposure, or simply plan with greater peace of mind, we’re ready to help you take the next step.
Speak to a Flying Colours adviser to start a conversation about your goals and how to plan for what’s ahead.
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or Will writing.