Labour hasn't promised the left its ideal of a broad, low-percentage annual wealth tax on assets over a certain threshold, but the idea is still being discussed. So, let's break down how it might work.
A wealth tax would require taxpayers to report their total net worth each year, gathering bank and savings statements, investment portfolio valuations, and determining the value of their properties, valuables, and even cars and boats. The government would also need to decide whether tax-free ISAs and pension funds would be included.
This would create a significant yearly burden, as taxpayers would need to ensure fair and independent valuations. If the tax threshold were set too low—say, £2 million or less—someone living in a modest two-bedroom flat in central London could face a hefty tax bill, despite having a low pension income and little other wealth. Likewise, owners of small, unquoted companies might struggle if their business's value pushes them into the tax bracket without generating enough cash flow to cover the levy.
In the U.S., Congress has explored a similar idea, considering a 1% tax on assets over $20 million and 2% over $100 million, targeting a small group of ultra-wealthy individuals to maximize revenue while minimizing hardship for those with less liquid wealth. However, no major U.S. political party has proposed such a tax.
A wealth tax could deter wealthy individuals from settling in a country, pushing them to seek less intrusive tax environments. The UK has already seen an exodus of rich individuals due to changes in non-dom tax rules. Notably, no G7 country imposes a wealth tax, and leading global economic bodies do not recommend one. Instead, there are other, more targeted methods of taxing wealth that the UK and other G7 nations already employ.
