Consultants say a wealth tax received’t save the UK from a £30bn black gap - right here’s why

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Your help makes all of the distinction. Learn extra Any try by Rachel Reeves to plug the hole within the UK’s public funds via a wealth tax could be “naive”, with only a few success tales from different nations, specialists have warned.

The chancellor might have to seek out as a lot as £30bn in financial savings via both chopping prices or elevating taxes forward of her Funds, with Keir Starmer’s authorities beneath strain to seek out methods of elevating funds for the general public purse.

However main tax lawyer Dan Neidle, now of Tax Coverage Associates, claims a wealth tax would even have a detrimental impact on the UK’s tax take – and that the federal government could be “conceited” to suppose it could work on this nation.

“What’s being proposed is radically completely different from each different present wealth tax. Present actual world wealth taxes are both stuffed with loopholes so the mega rich don’t pay (comparable to Spain), apply to the center class (Norway), or each (Switzerland),” Mr Neidle advised The Unbiased.

“The concept that we are able to do one thing completely different is naive. It’s conceited to suppose that we within the UK can obtain a holy grail everybody else has been too silly to seek out.”

A wealth tax is actually a means of taxing the whole worth of a person’s property, reasonably than simply their revenue, Deutsche Financial institution’s chief UK economist Sanjay Raja defined.

That may be on property comparable to property or shares, but in addition luxurious items, money, bonds or different valuables.

Mr Raja warned {that a} wealth tax just isn't solely troublesome to implement but in addition expensive and requires shut monitoring, together with usually valuing property.

“From an economics view, the benefit of a wealth tax is that it displays somebody’s long-term potential to pay or contribute to authorities funds, versus being taxed solely on their revenue tax,” he advised The Unbiased.

“In idea, the purpose could be to cut back financial inequality, since wealth tends to be extra concentrated than revenue.

“In actuality, it’s very troublesome to implement wealth taxes. Points round asset valuation on companies or actual property makes it troublesome, complicated, and expensive to do throughout a complete nation. It requires vital upskilling, infrastructure capability and personnel to implement successfully and pretty.

“There's additionally a giant downside of liquidity. On paper, some individuals could also be categorized as ‘rich’ or meet the brink for a wealth tax – nevertheless, in apply, they might lack the money to pay the tax given illiquidity of some property.”

In relation to taxing the rich, loads of nations have taken an analogous strategy.

There aren't, nevertheless, too many countries who would say their methodology has been an unmitigated success.

<img src="https://static.independent.co.uk/2025/07/08/14/01/GettyImages-2222623758.jpeg" srcset="https://static.independent.co.uk/2025/07/08/14/01/GettyImages-2222623758.jpeg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/2025/07/08/14/01/GettyImages-2222623758.jpeg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="Rachel Reeves and Sir Keir Starmer" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

Rachel Reeves and Sir Keir Starmer (POOL/AFP by way of Getty Pictures) Stuart Adam, a senior economist at IFS, identified that plans in different international locations have been ditched alongside the best way, with different modifications to taxation providing extra real looking and profitable long-term outcomes.

“Worldwide expertise of annual wealth taxes just isn't encouraging – they've been deserted in many of the developed international locations that beforehand had them,” Mr Adam stated.

“There are sturdy causes to radically reform how we at present tax the sources and makes use of of wealth; this contains reforming capital revenue taxes in an effort to correctly tax excessive returns. An annual wealth tax could be a poor substitute for doing that.”

Chris Etherington, personal shopper tax associate at RSM UK, added that individuals affected by any change in tax rulings might be extra more likely to merely reallocate property accordingly – if they might even be correctly assigned a taxable worth within the first place.

“There are enormous sensible challenges with introducing a wealth tax, specifically the necessity to usually worth property and agree these with HMRC,” he stated. “These affected are more likely to change their behaviour and circumstances in response to a wealth tax. It would lead to a redistribution of wealth amongst somebody’s household, reasonably than benefitting the broader UK inhabitants.

“Quite a few international locations have experimented with wealth taxes through the years, however there are few success tales, and lots of have repealed them. There are merely simpler methods of producing extra tax receipts.”

Mr Neidle defined the method rich people would absorb figuring out whether or not the strategy being thought-about for the UK could be prohibitive for them – and why the thought of the tremendous wealthy fleeing the UK just isn't precisely what it appears.

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(Getty Pictures) Typically talking, it’s accepted that buyers could look to attain long-term common returns of eight per cent or so.

Whereas which will differ wildly between several types of funding, it offers a place to begin for understanding how a lot a tax could affect when it’s on extra than simply revenue.

“A 2 per cent wealth tax doesn’t sound like a lot, however for somebody incomes an 8 per cent return on their property, that plus present dividend tax creates an efficient price of 60 per cent - and on a 12 months when property decline, an efficient price of over 100 per cent,” Mr Neidle defined.

“That creates an incentive to keep away from the tax out of all proportion.

“The tax would apply to only a few thousand individuals however these are among the most cellular individuals on this planet. Usually they stay in a number of international locations, spending a couple of months a 12 months in every. Asking whether or not they'll ‘depart’ the UK is the unsuitable query; it’s whether or not they spend a bit much less time within the UK and turn into non-resident.”

The ultimate argument could, maybe, come down as to if such a transfer to herald a wealth tax – or some other sort of tax – raises extra money, or sees extra money depart the nation.

One report by the Centre for Economics and Enterprise Analysis suppose tank estimated that if greater than 25 per cent of non-doms departed the UK, the general change could be a internet price to the Treasury.

By way of what has been seen elsewhere already, the reply is obvious, insisted Mr Neidle.

“Standard wealth taxes have been estimated to retard an economic system by 1 per cent. The uber-wealth taxes being proposed could be extra dramatic nonetheless,” he stated.

“The wealth tax is the last word within the fantasy view we are able to get one thing for nothing, tax different pdaneople and lift a number of cash with no consequence. There are at all times trade-offs, and the downsides of the wealth tax are notably extreme.”