Could a UK wealth tax be on the horizon as we approach the Autumn Budget 2025?

Continuing economic uncertainty in the UK, alongside Rachel Reeves’ commitment to stick to her fiscal rules, has led to increasing speculation around what we might see announced at the Autumn Budget 2025. Tax rises are high on the agenda, and more recently a potential wealth tax is once again hitting the headlines.

The Prime Minister confirmed at PMQ’s on 9 July that he stands by Labour’s manifesto promises not to increase income tax, VAT or national insurance on employees. However, when put to him that he's “flirting with calls for a wealth tax”, he refused to rule it out but later stated that "we can't just tax our way to growth". A subsequent statement by the transport secretary referred to no tax hikes for “people on modest incomes”.

Back in August 2023, Rachel Reeves was reported to have ruled out any version of a wealth tax on the richest in society should Labour win the next general election.

However, in 2018 as a Labour backbencher, she is also reported to have backed five different types of tax on wealth:

• Revising council tax bands
• Replacing council tax with property tax
• Raising and reforming IHT
• Imposing a land tax
• Bringing capital gains tax in line with income tax

At the time of publication there is ongoing speculation around whether or not Rachel Reeves will make an announcement confirming her view on a wealth tax.

A 'wealth tax’ is broadly a charge on a person’s assets, in contrast to the majority of taxes that are charged when cash or assets move between parties. A principle behind the tax is to redress the imbalance between the taxation of wealth and labour. While tax on wealth can take many forms, a ‘wealth tax’ tends to refer to a tax applied to the total value of an individual’s assets, such as property, investments and savings.

While a wealth tax has never been implemented in the UK, a small number of countries do impose a wealth tax. It was also the focus of a report published in 2020 by the Wealth Tax Commission.

The report was commissioned as a response to the impact that COVID-19, and the government’s response, had on the deficit. The key recommendations from the report were:

• An annual wealth tax was not recommended for two main reasons. Firstly, there are existing taxes on wealth including IHT, CGT and council tax for which the report instead recommended “major structural reforms”. Secondly, an annual wealth tax would have high administrative costs compared to a one-off wealth tax, so would be costly to operate and would face “significant behavioural responses”, so would risk a flight of capital
• A one-off wealth tax came with a key caveat that it “must have a compelling justification such as the national crisis created by COVID-19, so that the public can trust that it will be one-off.” With that caveat the recommendation was to implement a one-off wealth tax in preference to increasing taxes on work or spending, alongside reform to existing taxes on wealth

The report provided significant detail on this proposal, including that the one-off wealth tax should be charged:

• On an individual’s net assets, being total assets minus debts
• On an individual rather than household basis, although couples could be jointly assessed
• With very limited exemptions
• On assets at their open market value, creating a considerable issue of valuations
• It should be announced without prior warning to prevent any planning to reduce exposure to the tax

It should be noted however that this report was not commissioned by the then government.

Annual wealth taxes used to be more prevalent across Europe including Germany, France, the Netherlands, Sweden, Denmark and Ireland. These wealth taxes were repealed in those countries because they have proved more bothersome and costly than the revenue they raised. There remain three European countries that continue to apply a wealth tax:

Spain has two different wealth taxes: the wealth tax and the solidarity tax. Spain introduced its current wealth tax in 2011, initially as a temporary response to the financial crisis. Its previous temporary wealth tax lasted from 1978 to 2008. It was made permanent in 2021 and is charged annually on net wealth. This is worldwide assets for Spanish tax residents, and some Spanish goods and rights for non-residents.

One quirk is that each region in Spain can set its own exempt amount. There is a wide variation, and some regions have chosen to give a 100% reduction.

The other wealth tax is the ‘solidarity tax’. This was introduced as a response to the exemptions given by some regions. It has a higher threshold, and wealth tax payments are deductible, so is essentially a top-up to collect wealth tax payments exempted by the regions. 

There are also gift and inheritance taxes.

Norway has no inheritance taxes, but levies local and state wealth taxes. Together, these are currently 1.1% on global assets above a threshold. 

Switzerland's wealth taxes are levied by the individual cantons on net wealth. This is worldwide net wealth for Swiss residents, with varying rates. Municipalities can also levy an additional wealth tax. Most cantons also levy some level of inheritance and/or gift taxes. However crucially Switzerland does not operate an inheritance tax at federal level and so a wealth tax is a proxy for an annual ‘pay as you go’ inheritance tax.

A wealth tax would come with significant challenges and would be very difficult to implement. There would be significant valuation difficulties and associated costs. It is insensitive to subsequent changes in wealth, and impacts disproportionately the old more than the young for the same level of wealth. Finding the money to pay the tax may require selling assets or extracting money from a business, which could in themselves create additional tax liabilities.

Some of the complexities that would need to be addressed include:

• Thresholds: Determining a ‘fair’ level for wealth that should be taxed
• Exemptions: Limited exemptions would result in illiquidity, as significant wealth can be held in homes, chattels, intangible assets and defined benefit pensions. This would further dampen business growth, which has already suffered from recent NIC increases, rises in national minimum wage (NMW) and proposed business property relief (BPR) and agricultural property relief (APR) changes
• Administration: Listing and then valuing all assets would be a significant administrative and financial burden
• How to treat non-UK residents: This is a complicated aspect. Do you tax UK wealth held by non-UK residents, which risks driving overseas investment away from the UK? Do you tax worldwide wealth, and if so how do you deal with complex double tax issues? Do you tax recent leavers / arrivers, but then what would be the cut-off date and is it fair to have a cliff-edge? How do you treat trusts, would this be based on the residency status of the settlor, the residency status of the beneficiaries, or where the assets of the trust are located?
• Cost: There would be fixed costs for the state to revalue the housing stock and administer the tax, collectively estimated at £579m. There would also be variable costs for each taxpayer to submit returns and deal with associated HMRC enquiries. As Denis Healey, former Chancellor of the Exchequer, reflected on the position in 1974: “We had committed ourselves to a Wealth Tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and the political hassle”

Introducing a wealth tax without prior warning would ease the passage of such a tax, but would also prevent public consultation. It is difficult, although not impossible, to envisage that such a major imposition of new tax would be introduced in this way.

Examples of the importance of consultation include the government rowing back on the winter fuel allowance and the personal independence payment (PIP) last month. Similarly, there are examples of the government listening to feedback from industry and professional bodies in relation to carried interest when it published its response to consultation in early June, as well as rumours last month that the Chancellor is considering softening some of the April 2025 non-dom changes.

In theory it could raise a large amount of tax in a shortish amount of time. The Wealth Tax Commission estimated that a one-off tax on wealth above £0.5m charged at 1% could raise £260bn, other reports have suggested a 2% tax on assets over £10m could raise between £12bn and £24bn per year, though these estimates depend heavily on the parameters of any tax actually introduced.

The knock-on behavioural impact is the key concern, either that a further ‘one-off’ tax would follow a number of years later, or that the tax environment more generally would result in those with the ‘broadest shoulders’ losing confidence and deciding to leave the UK.

There are a number of smaller levers on the rumour mill that the Chancellor could pull to raise extra revenue and narrow a fiscal headroom gap more simply and more quickly.

The main rumours currently revolve around taxing pensions. A further fiscal drag tax has been speculated to extend the freeze on income tax thresholds, which is due to end in April 2028. It has been reported that extending this for another two years could raise up to £7bn per year.

Other tax revenue possibilities include increases to gambling taxes or bank levies.

It is natural for there to be concern in a policy vacuum, with taxes on wealth increased at the last Budget and a wealth tax not ruled out for future budgets. However, it is important individuals do not overreact to press speculation and that actions remain driven by commercial factors. 

The weight of evidence from other jurisdictions that have ditched wealth taxes and the complexities of designing a system that produces a successful tax yield without driving negative behavioural responses all suggest that a wealth tax would be a poor choice compared to simpler alternatives for raising revenue.

Nevertheless, with significant changes being proposed to restrict BPR and APR reliefs for IHT from April 2026, now is also a time to reflect on your IHT position and succession plans and you can read more on these IHT changes.

Given such uncertainty, the focus should be on controlling your controllables, ascertaining what is important to you and how to achieve that, while building in flexibility.

Please do get in touch with your usual S&W contact or one of the contacts listed if you would like to discuss any of the above further.