A wealth tax could lead to an exodus of £100 billion out of the UK economy, Rathbones has warned, as speculation mounts that the Chancellor could unveil a wealth tax in the Autumn Budget.
As Rachel Reeves faces increasing pressure to address a fiscal shortfall, economic analysis by Rathbones suggests more than £100 billion of wealth could shift overseas or into less productive assets.
Furthermore, the wealth manager said the tax could cost the Government £600 million to set up, with ongoing compliance and administrative costs on taxpayers totalling £700 million a year or more.
Unlike inheritance tax, which is levied at death, a wealth tax requires constant monitoring.
Oliver Jones, head of asset allocation at Rathbones Group, said: “There is clear evidence that a recurring wealth tax would be economically damaging to the UK. Such a tax would require annual valuations of complex and illiquid assets – including private businesses, art, and intellectual property – for thousands of individuals.
“This process would be costly to administer, difficult to enforce, and could create significant economic distortions.”
Simon Bashorun, head of advice at Rathbones Private Office, said changes to the non-dom regime have already slowed the influx of the super-rich and a wealth tax risks accelerating an exodus of wealthy individuals from the UK.
He said: “We have highly paid professional clients now looking to relocate to more tax-efficient jurisdictions like Dubai or Singapore. Many others may simply decide not to come here in the first place.
“In a world where countries are constantly competing to attract wealthy individuals and their tax dollars to bolster economic growth – something the UK is crying out for – we seem to be making it harder for ourselves to win.”
Rathbones also notes that, since over a quarter of the UK’s billionaires, and an even higher proportion of the very richest are foreign nationals, there is a high risk their flight will diminish the ongoing value of any wealth tax.
The firm said that analysis of Spain, Norway and Switzerland, where wealth taxes are currently implemented, provides little encouragement.
Since the 1990s, the number of rich countries levying wealth taxes has fallen by three-quarters, from twelve to just three. Spain and Norway raise comparatively little revenue through their limited wealth taxes, far less than UK advocates anticipate, Rathbones said.
Only Switzerland raises significant revenue from wealth taxation, but its entire tax system is structured differently, with minimal taxes on income, dividends, and inheritance.
Rathbones has suggested that as an alternative, the UK government could explore property-based taxation.
Jones added: “Alternatives to a wealth tax might include further changes to inheritance tax, following the reduction of various exemptions in the 2024 Budget. That would be cheaper and less damaging to implement. However, raising inheritance tax rates could be very challenging politically, given the evidence that it is an especially unpopular tax.”
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