Only one country has ever made a wealth tax work – and it's not Britain. A wealth tax might tick all the right buttons, but they fail for a simple reason, according to Nick Perrett, Founder and CEO of FCA-regulated wealth platform Prosper.
Global Failures
In 1990, 12 OECD countries levied an annual tax on net wealth. By 2017, just four remained. Once France converted its version into a property-only tax in 2018, only three were left: Norway, Spain and Switzerland. Austria abolished its wealth tax in 1994, Denmark and Germany in 1997, the Netherlands in 2001, Finland, Iceland and Luxembourg in 2006, and Sweden in 2007.
France ran the most notorious experiment – the ISF, a “solidarity tax on fortunes” – from 1988 to 2017. It saw a net outflow of around 60,000 millionaires from 2000 onwards. At its peak, roughly two wealthy taxpayers were leaving the country every single day.
Costly Consequences
A tax that costs the state twice what it raises is not a tax. In fact, it’s a complete own goal. No wonder Emmanuel Macron scrapped it in 2018. Sweden abolished its own wealth tax in 2007. By the mid-2000s, an estimated 500 billion kronor of Swedish capital – around £40billion – had been shifted offshore, much of it to escape the tax. Ingvar Kamprad, the founder of IKEA and then Sweden's richest man, was living in Switzerland.
The same headaches arise everywhere the annual version has been tried. Valuation is a nightmare. What is a private business, a farm or a pension pot worth this year? Ask ten accountants, get ten answers – then litigate all of them; asset-rich, cash-poor people are forced to sell assets just to pay the levy; and it all gets watered down when exemptions get lobbied in – businesses, farms, pensions, art – until the base looks like Swiss cheese and the yield is trivial.
UK Investigation
Most OECD wealth taxes raised well under 1% of total tax revenue. The genuinely rich, the most mobile people on Earth, simply leave. The UK has already run the most thorough investigation of a wealth tax anywhere in the world. The Wealth Tax Commission of 2020 decided not to recommend an annual wealth tax for us. The international record was too poor, the administrative costs too high, the behavioural responses too corrosive.
Reform existing taxes instead, they said. The only version they could defend was a one-off emergency levy – and a one-off is only clean if nobody believes it will be repeated. Good luck with that.
Swiss Exception
There is a single exception to the rule. Switzerland has taxed wealth since the 19th century – it levies virtually no capital gains tax on private assets. So the wealth tax substitutes for other taxes on capital – it does not stack on top of them. Switzerland is the world's biggest net importer of millionaires. Political stability, privacy and lump-sum deals for wealthy foreigners all keep it that way. The wealth tax is, in effect, the membership fee for the world's most attractive wealth club. People queue up to pay it.
UK Comparison
Now compare the UK. A wealth tax here would stack on top of capital gains tax, inheritance tax at 40%, stamp duty and dividend taxes – not substitute for them. And the moving vans are already busy – the UK is already seeing millionaires leave en masse. Plus, before anyone claims Britain does not tax wealth at all – we do, extensively.
Capital gains tax, inheritance tax, stamp duty and dividend taxes, between them, raise tens of billions a year. The honest debate is about how we tax wealth, not whether. The conditions that make the Swiss tax work are precisely the conditions the UK does not have and cannot legislate into existence. If we want to fight inequality, why not start by ending the quiet transfer of ordinary savers' returns to a banking industry that has overcharged them for decades? Every extra pound in fees is a pound quietly moving from a family's pockets into their providers' profits – wealth that should have stayed invested and growing for the people who earned it, is lost forever.
