Calls for a wealth tax are getting louder, but would it do more damage, asks TERRY MURDEN
Tax the rich to feed the poor. Introducing a wealth tax is the new(ish) campaign by the left that’s getting louder as Rachel Reeves looks for ways to plug the gap left by her failed attempt to tax the poor. With the Westminster government running out of ideas, the Robin Hood approach to government finances is seen as the easy option.
On the face of it, a wealth tax looks like a simple solution to redistributing wealth and helping fill the Treasury’s empty piggy bank. Figures from DS Burge & Co show that in 2022, the income of the poorest individuals in the UK fell by 7.5% in real terms, while the wealth of the richest fifth increased by 7.8%.
However, wealth taxes differ from other forms of taxation in that they focus on an individual’s entire assets rather than targeting specific income streams. Kieran Burge of DS Burge says that unlike capital gains tax, which is only triggered when an asset is sold at a profit, a wealth tax is typically an annual charge based on the value of the assets owned, whether or not they are sold.
Another problem with a wealth tax is that it often has unintended consequences. Put simply, rather than bringing in more money it actually leads to lower revenues. That’s because the rich don’t take kindly to being taxed on well-earned assets on which they have already paid tax – and choose to relocate to more friendly tax regimes.
One of the Chancellor’s potential targets is Steve Rigby, chief executive of the £600 million Rigby Group which has interests in hotels, technology solutions and an airport. Rigby describes himself as a “patriotic taxpayer” who believes deeply in the social contract which means taxes are levied to pay for public services.
“A wealth tax would shatter that balance,” he writes in a column in City AM. “Taxing assets that have already been taxed many times over isn’t just unsustainable; it also risks driving away the people and investment Britain needs most.”
Rigby says that an annual levy of just 1% on total assets would, in his case, exceed the entire dividend income his family receives each year – dividends already taxed at 40%.
“The mathematics simply don’t stack up. You cannot liquidate illiquid business assets annually to cover a tax bill bigger than your cash flow without destroying the very businesses that create jobs and drive growth.”
What about other countries that have gone down the wealth tax route?
In 1982, France imposed the “Impôt de solidarité sur la fortune” (ISF), also known as the ‘solitary tax on wealth’. This tax applied to individuals with total assets exceeding €1.3 million and encompassed various forms of wealth, including real estate, savings, and investments.
However, in 2018, the ISF was abolished and replaced by a narrower, property-focused wealth tax, the “Impôt sur la fortune immobilière” (IFI), which now targets only real estate assets above a certain threshold.
“As the UK considers the possibility of introducing its own wealth tax, the French experience offers important lessons.” says Burge. “A broad-based wealth tax in the UK could face similar challenges.”
Pali Banwait at Strive Consultants says the country’s heavy taxation regime and regulatory red tape are now encouraging entrepreneurs, small and medium enterprises (SMEs), and larger corporations, especially in the highly mobile service sectors, to explore opportunities abroad.
The UK is currently experiencing a record exodus of High Net Worth Individuals (HNWIs) and Ultra High Net Worth Individuals (UHNWIs), with the trend expected to accelerate dramatically over the next four years. Fiscal policy is acting as a catalyst for this exodus, with Britain under its heaviest tax burden since the 1940s and concerns growing about how Labour’s tax plans will continue to add to this burden.
Before April 2025, non-doms could keep foreign income offshore without paying UK tax on it. Now, after four years of UK residence, they must pay UK tax on worldwide income regardless of where it is held.
This is dealing a further blow to the UK’s attractiveness for startups and scaleups, as digital mobility means they can run their businesses remotely from a location with more a more friendly tax regime.
Research conducted by Henley & Partners found that 16,500 millionaires are set to leave the UK this year due to the new tax laws. The changes to the non-dom regime are cited as a contributing factor to this trend. And whilst EU nations like France, Spain and Germany are expected to see net outflows of 800, 500, and 400 millionaires respectively, this is far less than the UK.
Banwait notes that it’s not just ultra-wealthy individuals looking for alternatives to the increasing tax burden of operating from the UK. “Businesses of all shapes and sizes are looking for attractive regions in which to headquarter their operations for tax purposes – and that’s a key reason why the UAE is emerging as a top destination for internationally minded businesses and talent alike,” he says.
Dubai is doubling down in terms of its attractiveness to international capital and mobile businesses. There are an estimated 9,800 millionaires set to move to the UAE this year alone, drawn by its pro-business environment, zero income tax and high-quality of life and infrastructure. The numbers last year surpassed other UHNWI havens such as Monaco, Miami and Switzerland.
A big draw is the low rate of corporate tax rate. In the UAE, businesses pay 0% tax on profits up to AED 375,000 (£75,000), then just 9% above that threshold – a stark contrast to the UK’s 25%. “For business owners looking to retain profits and reinvest in growth, that difference is potentially transformational,” says Banwait.
Rather than impose ever higher levies and restrictions on business, the UK government and the Scottish government now face pressure to ease taxes and regulation. A significant step was taken by the decision to shelve plans requiring even the smallest businesses being required to disclose more information. A wealth tax may be rising up Westminster’s agenda but the chorus of opposition is getting louder.
There is a view, shared by the likes of Tory leader Kemi Badenoch and the businessman Sir Tom Hunter, that you cannot tax your way to growth. Denmark, a high tax regime, may beg to differ, but the wide range of welfare and social benefits received in Denmark provide a quality of life that outweighs concerns over tax.
The problem therefore seems to lie in our weak growth and poor delivery of public services, rather than in our tax regime. Boost productivity and find efficiencies to provide better social care, improve the health service, and deliver efficient education and transport systems, then the taxpayer may be prepared to pay a little bit more.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business
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