It is a bad idea to impose a new wealth tax

Surreptitious taxes are already affecting the wealthy

Ideologues hope that a wealth tax will force the wealthy to pay more in taxes. According to Merryn Somerset Webb, they're already sapped dry.

It's not very good to be wealthy in the UK. or even a respectable income. Our tax structure starts at relatively low levels and is firmly progressive. By the time you earn over £25,000, you may find yourself paying an effective marginal tax rate of 37% if you attended college and have student loans. Even if you don't, you still pay 28% tax on just £12,584 (which includes national insurance, also known as income tax).

And there are the atrocities of the milestone of 100,000. You lose your meager personal allowance, which is your tax-free income below £12,500, as soon as you surpass that income threshold. Even worse, you start to lose your childcare allowance if you have kids. Families with high incomes may have an effective tax rate of over 100%.

According to the Taxpayers Alliance, in 2024 - 2025, the top 10 percent of earners in the UK made 35.1 percent of all income. Additionally, they now pay 60.2% of their total income tax, up from 52.9% 20 years ago. These figures are 1 point 3 percent, 28 point 2 percent, and 22 point 7 percent for the top 1 percent. High income taxes are only the beginning, though. Additionally, taxes on luxury consumption are becoming more popular. Private school tuition now includes a new VAT charge. "Luxury" cars, defined as those with a list price of over £40,000, are subject to a tax of £2,100 over five years.

Air passenger duty (APD) is another factor. It doubles when you go from economy to long-haul (94 to 224) and increases six times if you fly on a private jet (673). A frequent flyer tax that is intended to prevent you from doing just that may be on the horizon, if the UK Climate Change Committee has its way. One could contend that these taxes are more luxury consumption taxes than wealth taxes because they impose charges on flows rather than stocks (no one is required to purchase a £40,000 car or a first-class ticket to Australia). Though the concept (those with the broadest shoulders, etc.) remains the same, that makes some sense.

Massive wealth taxes are already in place.

In any case, the UK Treasury is obviously struggling to make ends meet with all of this. The state therefore imposes a number of real wealth taxes as well. The most evident is inheritance tax (IHT), which is deducted at a rate of 40% of your estate over an effective valuation of more than £500,000 for an individual and £1,000,000 for a couple. Wealth is also targeted by the capital gains tax (CGT). Any gains over £3,000 are subject to CGT at a rate of 24% if you are a 40% taxpayer. It isn't inflation-indexed. You will have lost money if you make 20% on an investment during a time when prices have increased by 30%. Nevertheless, taxes will still be due, and you will wind up with less money than you had before the investment. It's cunning, but if your goal is to tax wealth, it works.

Then there is stamp duty. In the UK, you pay 0.5 percent of your share price in taxes almost every time you trade it. Additionally, you pay between 2 and 12 percent for the transaction each time you purchase a home for more than 145,000 in Scotland or 125,000 in England, which is the price of almost every home in the UK. In Scotland, your tax bill will be 138,350 if you purchase a home for 1,500,000. It is more than just a tax on wealth. The wealth tax is excessive.

Unfortunately, it appears to be too small for the most ardent tax-the-rich ideologues in the UK. A group of wealthy individuals known as Patriotic Millionaires UK, who model themselves after a similar group in the US, have written to the prime minister to demand a formal wealth tax that would impose an annual 2 percent tax on the wealthiest individuals (those with over £10 million in assets). Of course, it's a bad idea. First, it is obvious that we already have an adequate amount of wealth taxes. Secondly, we are all aware of the UK's tax situation. They advance through the ranks rather swiftly. It may begin at ten million, but before you know it, people with two million will be subject to it. Next is fiscal drag, which is a favorite tactic of our politicians. If the IHT allowance had increased in line with inflation since 2009, it would now be 1,570,000 per couple. If inflation continued for another ten or two years, our wealth tax would soon be imposed on almost everyone with a savings account.

But since this type of wealth tax has a long history of failing, there is no use in getting caught up in the specifics. A Labour government came to power in the 1970s with the intention of enacting a wealth tax. They failed to do so. It was far too likely to cause capital flight, too difficult to determine what should be taxed and how, and too complicated to value countless estates annually. It would generate little income, be difficult to manage, and run the risk of causing significant financial harm. The same criticisms are still valid today, especially in light of mounting evidence that Labour's tax policies are already discouraging people. According to analytics firm New World Wealth, 10,800 millionaires left the UK last year. Among them, twelve were billionaires. Others are reportedly packing their bags, including steel magnate Lakshmi Mittal and Aston Villa owner Nassef Sawiris.

There is good news for the Patriotic Millionaires, though. They are free to pay more taxes if they so choose. They can refuse to use their ISA allowance, reject any reduction in the council tax for a single person, make sure their estate pays the maximum amount of IHT, refuse to use their pension wrappers, reject the lower taxes on private equity carry, and, of course, never claim their state pension. They can also send money straight to the Treasury by sending an email to accountsreceivable@hmtreasury . gov . uk, or they can leave money to the state in their will if they feel like doing more. Simple.