The recent market turmoil has put Rachel Reeves in a precarious position.
The Chancellor has made clear she will not budge from her self-imposed fiscal rules, which set out how much the Government can borrow and invest.
But as borrowing costs soar, her iron-clad commitment is being tested, which means she needs to find extra cash elsewhere.
The two options are cutting spending again or raising taxes, something Labour pledged not to do in their election manifesto.
Both options are unpopular, but a group of campaigners say they have found a way to boost the Treasury’s coffers without affecting working people: a wealth tax.
They say taxing the super-rich will raise the necessary funds while simultaneously tackling rising inequality. Critics say it would only speed up the flight of the wealthy to more friendly (or lower tax) countries.
With the changing economic backdrop, would it make sense for the UK to look at a wealth tax? We look at what campaigners are asking for and, most importantly, whether it would work.
Tax the rich: Campaigners are calling on Rachel Reeves to impose a wealth tax
What are the different options for a wealth tax in the UK?
The idea of a wealth tax is not new. It was first explored in 1974 and again in 2020 by the independent Wealth Tax Commission.
While it hasn’t ever been implemented in the UK, a handful of countries have chosen to tax the wealthy. It was briefly adopted in France, before it was abolished in 2018, and it remains in place in Norway, Spain, Colombia and Switzerland.
City trader-turned-campaigner Gary Stevenson is calling for a one-off wealth tax
Each country has their own rates and thresholds and taxes different assets.
In the UK, there are different ideas of what and how a wealth tax would be implemented.
The Wealth Tax Commission concluded that a one-off wealth tax after the pandemic could deliver sufficient revenues to the Treasury, but it did not recommend any rates or thresholds.
Now, campaign group Tax Justice UK is calling on more taxes for the super-rich to be introduced by the current Government.
They say that while many high earners pay their fair share of income, those making money from capital gains face a much lower rate.
Capital gains tax is levied on profits from assets ranging from shares to second homes, buy-to-let properties and personal possessions.
The rates for stocks and shares gains were hiked in the Autumn Budget to 18 per cent for basic rate taxpayers and to 24 per cent for those paying higher rates of tax.
The rises, from 10 per cent and 20 per cent respectively, brought them into line with the already higher levies on property gains and took effect immediately.
Traditionally, CGT rates are applied at lower rates than income tax, because profits tend to come from people taking a risk – whether an entrepreneurial one or an investment one.
The charity says a wealth tax would make the CGT system ‘fairer’, but what does their idea of a wealth tax look like?
It wants to apply a 2 per cent wealth tax on assets over £10million, which it says will raise up to £24 billion a year, while also reforming CGT to raise £14 billion.
It is also looking to apply national insurance to investment income, close inheritance tax and non-dom loopholes, and introduce a 4 per cent tax on share buybacks.
Has a wealth tax ever worked?
Only four countries have retained a wealth tax: Norway, Spain, Colombia and Switzerland, but other countries have tried and failed.
In 1997, the German Constitutional Court declared the wealth tax constitutional, while the Dutch Supreme Court ruled that a wealth tax violates European law in 2021.
Other countries have repealed their wealth taxes because they raise little revenue, create high admin costs and can lead to an outflow of wealthy individuals.
Experts generally agree that wealth taxes can have an impact, but it tends to be marginal. Instead, many economists argue that governments should improve existing tax systems rather than introducing new wealth taxes.
The Wealth Tax Commission said an annual wealth tax would not work and instead recommended that the government reform existing taxes on wealth.
Others say that a wealth tax will lead to more and more people fleeing the UK to tax havens, which in turn will bring down the overall tax take.
Economist Cristina Enache wrote in 2024: ‘Wealth taxes disincentivise entrepreneurship, leading to less innovation and less long-term growth.
‘A wealth tax reduces wages, destroys jobs, and reduce the stock of capital. All income groups are worse off under a wealth tax due to decreased economic activity.’
Wealthy investors are likely to find ways to sidestep paying taxes on their assets, as they have done since the change to the CGT thresholds.
Recent figures show that CGT receipts fell in 2024/25 tax year, their lowest level since 2020/21, after the Government cut the tax-free allowance and raising the tax rate.
Wealth taxes also make up a tiny share of tax revenue in countries that have implemented them.
In 2022, tax revenue from individual wealth taxes were 0.19 per cent of GDP in Spain and 1.19 per cent in Switzerland. As a share of total tax revenues, they made up 0.51 per cent in Spain and 4.35 per cent in Switzerland.
Critics of a wealth tax also say that the UK already taxes the super-wealthy in the form of CGT, inheritance tax and stamp duty, which aren’t imposed in countries with wealth taxes.
While Switzerland is often cited as being a successful example of a country with a wealth tax, it has no federal inheritance tax or CGT so can retain wealthy residents.
There’s also the administrative and logistical burden of a wealth tax, which would involve finding out what the wealthy own, which they can hide in companies or trusts.
Once tax authorities have worked out their assets, they then have the thankless task of valuing them.
If the Government opted for an annual tax, this asset valuation would have to happen every year.
A 2018 OECD report found that ‘there are limited arguments for having a net wealth tax in addition to broad-based personal capital income taxes and well-designed inheritance and gift taxes.’
It found that net wealth taxes ‘tend to be more distortive and less equitable. This is largely because they are imposed irrespective of the actual returns that taxpayers earn on their assets.’
Wealth taxes also cannot be implemented in isolation, governments need to look at the tax system as a whole.
The OECD report said: ‘A net wealth tax may have more limited distortive effects and be more justified as a way to enhance progressivity in countries where the taxation of personal capital income is comparatively low.’
The alternative is raising the tax on income and on capital gains derived from the sale of that wealth, but this will also alienate the wealthy who may still look to leave the UK.
It leaves Reeves with the impossible task of balancing the books having already cut spending, but also not alienating the wealthy.
SAVE MONEY, MAKE MONEY
Isa offer
Isa offer
40% off account fees for six months
Fix energy bills
Fix energy bills
Check price cap beating deals with uSwitch
Fee-free Isa investing
Fee-free Isa investing
Free share and ETF dealing, no account fee
5.70% cash Isa
5.70% cash Isa
Rate boosted for three months, then 4.85%
Sipp cashback
Sipp cashback
Up to £250 on Sipps worth at least £10,000
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.
