Wealth taxes

Some Labour MPs and other commentators have suggested that a wealth tax could help solve the chancellor’s fiscal problems.
 
This explainer gives some background on wealth taxes.

Does the UK currently have a wealth tax?

The UK does not have a comprehensive wealth tax.  It does however have some taxes on assets and capital gains. The most notable are:

1. Inheritance tax (IHT)

Inheritance tax (IHT) ⁵² https://www.gov.uk/inheritance-tax  is a tax generally levied at 40% on the value of estates over £325,000 when someone dies (there is a higher threshold of £500,000 for houses left to direct descendants, and transfers between married couples do not attract IHT and the second spouse to die can use any unused threshold from the earlier death).  

Since the October 2024 budget, the relief for farms and businesses has been abolished ⁵³ https://www.tax.org.uk/inheritance-tax-october-2024-budget-explainer  and these are now taxed at 20% above a higher threshold of £1m. Any transfers made more than seven years before someone dies are exempt from tax (as are minor annual gifts and regular gifts out of surplus income) and a taper applies on gifts made between three and seven years before death so the longer ago the gift was made, the less tax is payable.  Inheritance tax was forecast ⁵⁴ https://obr.uk/efo/economic-and-fiscal-outlook-march-2025/#chapter-4  to raise £8.4 bn in 2024/25 but the yield is forecast to increase to £14.3bn in 2029/30 as more estates are taxed as the threshold, which has not been raised since 2009, is frozen to 2030.

2. Capital gains tax (CGT)

Capital gains tax (CGT) ⁵⁵ https://www.gov.uk/capital-gains-tax  is levied on realised capital gains above an annual allowance of £3,000 (this has been reduced significantly in recent years), separate from the personal income tax allowance (capital losses can be used to reduce liabilities). No CGT is payable on the sale of a principal residence.  CGT has in the past been levied at the same rate as income taxes, but even after an increase introduced by Rachel Reeves in the 2024 budget, is now levied at lower rates of 24% (for higher rate or additional rate taxpayers) or 18% for basic rate payers, though there is a rate of 32% on “carried interest”. In 2024/25 CGT was forecast by the OBR ⁵⁶ https://obr.uk/efo/economic-and-fiscal-outlook-march-2025/#chapter-4  to raise £13.3bn, rising to £19.7bn in 2025/26.

3. Council tax

Council tax ⁵⁷ https://www.citizensadvice.org.uk/housing/council-tax/paying-council-tax/  is levied annually by councils according to the capital value band a property is placed in which reflects its value – in England these are still 1991 values, when council tax was first introduced to replace the community charge (poll tax). The bottom band (Band A) applies to properties worth under £40,000 in 1991; the top band (Band H) applies to any property worth over £320,000 at that time – so a property worth many millions will pay the same as one that just squeaks into the top band. 

The ratio between charges is even more compressed (so a Band H property only pays three times more than a Band A property). There has been a more recent revaluation in Wales, Scotland has changed the relativities between the highest bands, and Northern Ireland ⁵⁸ https://www.finance-ni.gov.uk/topics/domestic-rating  still levies domestic rates. Any property where only one person is liable attracts a 25% discount. Second homes can be liable for council tax rates up to double the sole property rate and empty homes can also be charged at a premium. In 2024/25, Council Tax was forecast ⁵⁹ https://obr.uk/efo/economic-and-fiscal-outlook-march-2025/#chapter-4  to raise £47.7bn.

4. Taxes on property transactions 

Taxes on property transactions also raise significant sums and count as capital taxes. The most notable is stamp duty on property purchases which raised £15bn. ⁶⁰ https://obr.uk/efo/economic-and-fiscal-outlook-march-2025/#chapter-4

What are proponents of a wealth tax proposing? 

One proposal is for an annual levy of around 2% on wealth in excess of £10m. A University of Warwick tax simulator ⁶¹ https://arunadvani.com/taxreform.html  suggested (based on 2023 figures and assuming that this tax was charged on all forms of wealth including private pensions and principal residences) that this could raise around £24bn a year.

In the past there have been other suggestions for a one-off levy (for example to pay down the covid debt) on wealth over a much lower threshold. A proposal from a Wealth Tax Commission ⁶² https://www.ukwealth.tax/  for a one off levy, paid at 1% for five years on all net wealth over an individual threshold of £500,000 could raise £160bn (or over £30bn annually).

What is the economic case for a wealth tax? 

There is a stronger economic case for a one-off wealth tax than for an annually recurring tax on all wealth, as researchers at the Institute for Fiscal Studies have set out. ⁶³ Adam, S and Miller, H, 2020, ‘The economics of a wealth tax’, for the Wealth Tax Commission, accessed 17 September 2025, https://www.wealthandpolicy.com/wp/103.html

A one-off wealth tax – if it were unexpected (so people were not incentivised to change their behaviour to avoid it) and credibly one-off (so people did not change their behaviour out of fear of it being repeated in future) – would be an efficient way to raise revenue. This could then be used to address existing wealth inequality, which some argue has detrimental economic effects. However, implementing such a tax in a way that was truly unexpected and credibly one-off would be a major challenge in practice.

An annual wealth tax would affect future economic activity and wealth accumulation. Making the economic case for a tax that repeatedly taxes the same wealth every year – in other words, penalising those who save rather than spend their money – is less straightforward. There are stronger economic arguments for raising the same revenue by taxing all sources of wealth once when they are received (and/or when they are spent). The UK’s current tax system does not currently do this and so there is a strong economic argument for reforming some of the existing wealth taxes listed above – for example, reforming CGT to properly tax high investment returns.

Would a wealth tax be popular? 

Inheritance tax is very unpopular even though the number of people whose estates end up being liable is quite small (though rising).

However, polling suggests considerable public support for a wealth tax. A YouGov poll taken in July 2025 suggested 49% of voters would “strongly support” a wealth tax of 2% on estates over £10mn and a further 26% would “somewhat support” one, with only 13% of voters opposed.

What are the potential problems with a wealth tax?

In order to levy a wealth tax, policy makers would have to work out:

• What to include – most people’s wealth comprises of housing (net of mortgages) and pension funds but many other taxes (such as CGT) exempt owner occupied housing
• How to value assets – a lot of asset values fluctuate and some may be very hard to value, such as property that has not been sold recently, art works or unlisted companies
• Where to set the threshold and rate
• Whether to tax on an individual or household basis (and how to apportion wealth where there are joint assets)
• How to deal with people who are asset rich (therefore liable to pay) but cash poor (so would likely have to sell assets to pay immediately)
• How to maintain yield by stopping people taking legitimate measures to avoid liability 

This would be a very significant administrative task and the higher the rate, the more contested valuations would be and the more likely that people with significant wealth would engage in tax planning to reduce liability.  

How quickly could a wealth tax be brought in? 

Previous IfG work ⁶⁴ https://www.wealthandpolicy.com/wp/112.html  concluded that introducing a wealth tax in the UK “could take over four years to rigorously consider the options, build public support and effectively legislate for and implement a new net wealth tax”. Ministers could move more quickly but there would be risks in doing so, particularly if the tax were to affect a relatively large proportion of the population and if the government had no existing mandate for this reform.

What is international experience of wealth taxes? 

A 2018 report for the Organisation for Economic Cooperation and Development (of developed economies) ⁶⁵ https://www.oecd.org/en/publications/the-role-and-design-of-net-wealth-taxes-in-the-oecd_9789264290303-en.html  said that in 2017 only four members (France, Spain, Norway and Switzerland) were still levying annual net wealth taxes compared to 12 in 1990. Since then France has limited its wealth tax to real estate wealth. ⁶⁶ https://www.notaires.fr/en/housing-tax-system/tax-system-real-estate-management/wealth-tax-ifi  Decline in the use of wealth taxes had “been justified by efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals. 

The revenues collected from net wealth taxes have also, with a few exceptions, been very low. More recently, however, some countries have shown a renewed interest in net wealth taxes as a way to raise revenues and address wealth inequality.”  The OECD concluded that broad based capital income and transfer taxes were to be preferred to a net wealth tax, but if these were not present there could be a case for a wealth tax.

Are there alternatives to a wealth tax? 

Many people (including the Institute for Fiscal Studies) ⁶⁷ https://ifs.org.uk/articles/wealth-tax-would-be-poor-substitute-properly-taxing-sources-and-uses-wealth  argue that rather than introduce a new wealth tax the government should sort out the mess of current capital and property taxes. The Mirrlees review – a comprehensive look at how to reform the tax system, established by the IFS, that reported in 2011 ⁶⁸ https://ifs.org.uk/books/tax-design  – made a series of detailed reform proposals. More recent work from the IFS and the Centre for the Analysis of Taxation (CenTax) has focussed on similar types of proposals, such as reforming CGT  and reliefs in IHT , with these changes having been partially adopted by government.