Wealth tax comes around again

Talk of a wealth tax has returned as another difficult Autumn Budget looms.

In the wake of the Covid-19 pandemic, there was much talk of a wealth tax to fill the hole that had been created in the government’s coffers. At the end of 2020, a Wealth Tax Commission, independent of the government, published a report drawing on extensive tax, legal and economic research. The Commission deliberately avoided making any specific recommendations, but the variant that received the most attention was:

• A 5% one-off tax would apply to individual wealth exceeding £500,000. An annual tax was considered but dismissed as administratively difficult and costly.
• The definition of wealth had no exceptions – it included homes, businesses and pensions, wherever located. 
• While the tax was a one-off, there would be an option to pay it in interest-bearing instalments over five years.

The Commission calculated that, at the time, such a structure would produce £260 billion of tax – £52 billion a year plus interest. To put that into perspective, total government debt in April 2026 was £2,943 billion (and £2,155 billion at the end of 2020/21).

The proposals of the Wealth Tax Commission were not taken up by Rishi Sunak, either as Chancellor or Prime Minister. His chosen tax-raising measures were increased corporation tax and freezes in tax bands and allowances, which his successors have turned into something close to permafrost.

Currently, the Green Party favours an annual wealth tax of 1% for assets above £10 million, rising to 2% on assets above £2 billion. Wes Streeting has proposed a “wealth tax that works”, by which he means aligning capital gains tax (CGT) rates with income tax. How much either ‘wealth tax’ would raise is uncertain because:

• There is no detailed data on individual wealth. The Green Party has suggested their idea could raise £15 billion a year, but commentators have questioned the figure.
• Much depends on how a small number of extremely wealthy people will react to any change. For example, the most recent figures for CGT show that in 2023/24 just 10,000 people (2.8% of CGT taxpayers) accounted for 64% of CGT paid.

Planning for a tax or tax change that does not exist is generally to be avoided. It is better to concentrate on the tax rules as they are rather than end up making a pre-emptive mistake. For proof, look at those people who rushed to draw their pension lump sum before the last two Budgets. 

Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.