Why a wealth tax won't work in Britain

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The UK isn’t a great place to have a high income. Or even a highish income. Our tax system is firmly progressive – and from pretty low levels. If you’ve been to university and have a student loan you can find yourself paying an effective marginal tax rate of 37% by the time you earn more than £25,000. And even if you don’t, you pay 28% tax from just £12,584 (including national insurance, an income tax by any other name).

Then there are the horrors of the £100,000 milestone. Once you pass that income threshold, you start to lose your measly personal allowance, whereby you normally pay no income tax below earnings of £12,500. Worse, if you have children, you start to lose your childcare allowance, too. For high-earning families, the effective tax rate can be more than 100%.

The top 10% of income earners in the UK accounted for 35.1% of total UK income in 2024-2025, according to the Taxpayers’ Alliance. What’s more, they paid 60.2% of all income tax – up from 52.9% 20 years ago. For the top 1%, those numbers are 1.3%, 28.2% and 22.7%. But high-income taxes are just the start. There’s also a trend towards luxury consumption taxes. There’s a new VAT charge on private school fees. There’s a tax on “luxury” cars (those with a list price of more than £40,000) of £2,100 over five years.

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Then there’s air passenger duty (APD), which doubles when you move up from economy class (£94 to £224 for long haul) and goes up six times if you travel on a private jet (£673). Coming soon, if the UK’s Climate Change Committee has its way, might also be a frequent flyer tax, designed to stop you from doing just that. You could argue that these last taxes are not so much wealth- as luxury-consumption taxes – they charge flows, not stock (no one has to buy a £40,000 car or a first-class ticket to Australia). That makes some sense – but the idea (those with the broadest shoulders, etc) is the same.

We already have huge wealth taxes

Either way, all this clearly isn’t enough for the UK Treasury to be getting by. So, the state levies a variety of actual wealth taxes, too. The most obvious is inheritance tax (IHT), charged at 40% of your estate over an effective valuation of more than £500,00 for a single person and £1 million for a couple. Capital gains tax (CGT) also targets wealth. If you are a 40% taxpayer, you are charged CGT at 24% on any gains you make over £3,000. That’s not indexed for inflation. Make 20% on an investment over a period in which prices have risen 30%, and you will have lost money in real terms. But you will still be taxed – and end up poorer than before you made the investment. It’s sneaky, but effective – assuming your aim is to tax wealth.

Next up, stamp duty. Almost every time you trade a share in the UK, you pay 0.5% of it away in tax. And every time you buy a house for more than £145,000 in Scotland or £125,000 in England (that’s pretty much all houses in the UK), you pay somewhere between 2% and 12% on the deal. Buy a house for £1,500,000 in Scotland, and your tax bill will be £138,350. That is not just a wealth tax. It’s a huge wealth tax.

Sadly, it seems it isn’t huge enough for the UK’s most enthusiastic tax-the-rich ideologues. Patriotic Millionaires UK, a group of rich folk modelling themselves on a similar group in the US, have written to the prime minister demanding a formal wealth tax – one that charges the rich (defined as those with a wealth of more than £10 million) 2% of their assets every year. It’s a terrible idea, of course. First, it is clear, surely, that we have enough wealth taxes already. Second, we all know what happens to taxes in the UK. They move down the ranks pretty quickly. It might start at £10 million, but it will be levied on those with £2 million before you know it. Then, there is our politicians’ favourite trick – fiscal drag. Give it a decade or two of inflation, and our wealth tax would soon apply to pretty much everyone with a savings account – if the IHT allowance had risen with inflation since 2009, it would now be £1,570,000 per couple.

But there is no point getting bogged down in the detail, largely because this kind of wealth tax has a long history of not working. In the 1970s, a Labour government came to power determined to introduce a wealth tax. They didn’t do it. It was too hard to figure out what to tax and how, too complicated to value endless estates every year, and far too likely to lead to capital flight. It would produce little revenue, be tricky to administer and risk serious economic damage. The same objections stand now – particularly given the rising evidence that Labour’s tax policy is already putting people off – last year, a net 10,800 millionaires left the UK, according to analytics firm New World Wealth. Twelve of them were billionaires. More, including Nassef Sawiris, owner of Aston Villa, and steel tycoon Lakshmi Mittal, are said to be packing their bags.

On the plus side, there is good news for the Patriotic Millionaires. If they want to pay more tax, they can. They can decline to use their ISA allowance, refuse any single person’s council-tax reduction, be sure to arrange their estate pays maximum IHT, not use their pension wrappers, reject the lighter taxes on private equity carry, and, of course, never claim their state pension. And if they feel they want to do more, they can leave money to the state in their will or simply send cash directly to the Treasury – just email accountsreceivable@hmtreasury.gov.uk. Easy.

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