If you think a wealth tax won’t hit you, you’re wrong

A lot of people in Britain seem keen on wealth taxes. They think it’s a way to hit the rich. But it won’t just be the rich that end up paying.

The idea of a new wealth tax in the UK isn't going away. In the last week, two parties have floated new plans.

The Greens suggested an annual tax of 1-2% on personal wealth over £3m, something they think would raise £40bn of other people's money for them to spend.

The Labour party has also had another go and come up with an additional estate tax. This would be charged at 15% and supposedly be hypothecated to cover long-term care costs. It would come on top of the 40% the heirs of anyone with any wealth pays already (assuming they haven't avoided it).

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All this makes us rather uncomfortable. We think that income in the UK is over-taxed relative to wealth. But that doesn't mean wealth in the UK isn't taxed.

There is the 2% inflation target (an effective wealth tax in that it reduces the value of your cash in order to keep the state show on the road); there is unindexed capital gains tax, which along with the inflation acts as a very nasty wealth tax (see my writing on the matter here); there is inheritance tax (although I would argue this is more an income tax on heirs see my thoughts here). There is stamp duty on property and share purchases and there is council tax (a low tax on wealth, but one nonetheless).

When people suggest they are keen on wealth taxes, further questioning usually suggests that they have two thoughts on it. The first is that we won't see a wealth tax in the UK without the removal of some other tax (not many countries have a wealth tax and a high rate of IHT). And the second is that if there is a wealth tax it won't hit them.

They are certainly wrong on the first: the UK is a tax adder not a tax subtractor. And if they aren't actually on the poverty line, they are very probably wrong on the second: fiscal drag will soon take care of that.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.