The introduction of a wealth tax would only serve to accelerate the exodus of wealthy individuals from the UK, warns Evelyn Partners.
There has been growing speculation that the Chancellor may introduce a wealth tax in the Autumn Budget as a means to plug a £51 billion black hole in the public finances.
However, Jason Hollands, managing director of Evelyn Partners, says: “The Chancellor’s tax raising options remain heavily constrained by Labour’s manifesto commitments not to raise rates of Income Tax, VAT or National Insurance, as well as corporation tax.
“While there is enthusiasm for introducing a wealth tax from some politicians and trade unions, the experience of other countries who have experimented with such a move suggest it would not work and only serve to accelerate the exodus of wealthier individuals and business owners from the UK.”
The UK tax base has become increasingly narrow in recent decades, with the top 1% of earners paying around 29% of all income tax, up from 11% in the late 70s.
Recent capital gains tax data also revealed that in 2023/24, 40% of CGT came from a small group representing just 1% of CGT taxpayers.
Hollands said another hike to capital gains tax so soon after the last, would risk undermining the Government’s objective of boosting investment and growth.
An HM Revenue & Customs report in 2024 concluded that a 1% CGT rate increase would generate the maximum additional amount (£100m to £200m per year) of additional CGT revenue, whereas a 10% rate increase would result in an ever-reducing amount of CGT revenue.
Similarly, an overhaul of pension tax reliefs, such as removing higher and additional rate relief would be “deeply unpopular” says Hollands, and go against the Government ambition of boosting pensions savings. It would also not be straightforward to implement and would have a big impact on the public sector, including doctors and consultants with generous defined benefit pensions.
Hollands says: “The reality is that if the Government does find it needs to raise taxes again, tinkering with the likes of CGT, dividend taxes and IHT and other levies that are designed to hit a relatively small group of people is unlikely to plug a potentially sizeable hole.
“Piling further pain on to businesses would have economic consequences, creating a feedback doom-loop for tax receipts. Therefore, broader-based tax options would need to be on the table.”
According to Hollands, revenue-raising ideas may include extending the freeze on personal allowances and thresholds beyond April 2028 or targeting fuel duty.
Hollands adds: “There is considerable uncertainty and speculation about tax rises ahead of the Autumn Budget. People should be careful about taking major, irreversible decisions purely on the basis of speculation, but it is wise to take sensible steps to protect your wealth such as utilising ISA and pension allowances. The only near certainty in the current climate is that taxes aren’t coming down any time soon.”
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