As the Autumn Budget approaches, speculation is mounting over potential tax rises—and one idea stirring both interest and controversy is an annual wealth tax.
Stuart Adam, a Senior Economist at IFS, comments:
‘There is growing speculation about whether taxes will go up in the Autumn Budget and – if so – which ones. One idea that is currently attracting interest and debate is an annual wealth tax that would apply to assets over a certain value.
It is difficult to make the case that an annual tax on wealth would be a sensible part of the tax system even in principle (some useful information for reference here and here). Taxing the same wealth every year would penalise saving and investment.
In practice, implementing a wealth tax would be difficult. It would require the government to set up a new administrative apparatus to value wealth – and valuation would be extremely difficult for some assets, such as private businesses: it is much easier to observe and tax the stream of income they generate. An annual wealth tax would need to apply broadly to all assets to ensure that it was not easy to avoid. Such a tax could raise significant revenue if it applied to the bulk of the UK’s wealth – that would include the homes and pensions of the middle class. Trying to raise large amounts of revenue from only the very wealthy would make the UK a less attractive place for those people to live.
International experience of annual wealth taxes is not encouraging: they have been abandoned in most of the developed countries that previously had them.
There are strong reasons to radically reform how we currently tax the sources and uses of wealth; this includes reforming capital income taxes in order to properly tax high returns. An annual wealth tax would be a poor substitute for doing that.’
