In her Spring Statement, chancellor Rachel Reeves announced significant cuts to certain disability benefits. She also outlined plans to reduce the size of the civil service in an attempt to slash government spending.
You can read more about the full range of changes in our dedicated Spring Statement update.
In recent weeks, critics of these policies have suggested that further spending cuts are not the most suitable way to balance the public finances. Instead, they suggested a “wealth tax” that would raise the additional revenue needed, so cuts may not be necessary.
Currently, the government has not announced plans to introduce a tax of this kind, but the idea does have support from certain MPs in parliament. Other countries around the world have implemented a version of the policy in recent years too.
As such, it may be useful to understand what a wealth tax could look like and how it might affect you.
Read on to learn more.
Countries including Spain, Norway, and Switzerland charge a tax on net wealth
There are various ways that a wealth tax could work, including a tax on net wealth. This would mean that individuals pay tax on the portion of their total assets that exceed a certain threshold, normally after debts and exemptions have been applied.
Several European countries including Norway and Spain operate this policy.
The Tax Foundation reports that in Norway, the government charges a 1% wealth tax on any assets that exceed 1.7 million Norwegian krone (roughly £125,000). The rate increases to 1.1% on assets over 20 million krone (almost £1.5 million).
Spain operates a similar tax on assets exceeding €700,000 (around £585,000) and the rate of tax originally varied depending on the region. However, in 2023, the Spanish government introduced the “solidarity tax”, which added an additional levy to certain regional rates, effectively designed to bring them all in line with one another.
According to Reuters, this measure raised an additional €632 million (£528.5 million) in 2023.
If the UK government introduced a wealth tax in the future, it could potentially use the net wealth model. Consequently, you could pay additional tax on your wealth, regardless of how you hold your assets.
The government could charge a wealth tax on specific assets, similar to France or Belgium
As well as a tax on net wealth, the government could charge an additional levy on certain assets, as they do in countries including France and Belgium.
France removed its tax on net wealth in 2018 and replaced it with a real estate wealth tax. French residents with worldwide property holdings worth more than €1.3 million (around £1 million) could be subject to an additional tax.
Non-French residents with more than €1.3 million worth of real estate holdings in France may also pay. The rate of tax varies but can be as much as 1.5%.
Similarly, in 2021, the Belgian government introduced a tax of 0.15% on investment accounts with an average value of more than €1 million (around £835,000).
Should a similar tax be introduced in the UK, you would need to consider how you hold your wealth and what the tax implications could be. Crucially, certain assets could become less tax-efficient than they previously were, so you may need to adjust your financial plan accordingly.
3 ways we could help you prepare for a wealth tax
There was no mention of a wealth tax in the recent Spring Statement, but there is still pressure on the chancellor to introduce the measure, and it could happen in the future.
Fortunately, there are several ways we could help you prepare for this eventuality.
1. Helping you understand new tax legislation
Tax legislation is very complex, and a wealth tax would likely have different rules about which assets are liable for the levy, and the threshold at which it takes effect.
When the government introduces new taxes, it is important to understand precisely how they work and whether you will be affected.
Without a clear understanding of the legislation, you might be unnecessarily worried about taxes that are unlikely to affect you. Conversely, you may underestimate how much you are likely to pay, making it difficult to plan effectively.
We can assist you here by explaining new legislation in clear terms and helping you understand exactly how it will affect your financial plan.
2. Finding the most tax-efficient ways to hold your wealth
If you were likely to be affected by a wealth tax, we could help you find ways to potentially mitigate a large bill. For instance, if the government introduced a tax on certain assets, we might discuss alternative ways to hold your wealth.
Similarly, if there was a tax on net wealth, we could explore options such as increasing your pension contributions or making gifts to family members to reduce the size of your taxable holdings.
Naturally, the precise solutions would depend on the nature of the tax. However, we will be able to work with you to find the most tax-efficient ways to hold and build your wealth.
3. Adjusting your financial plan
In some cases, changes to legislation could mean that you pay more, even if we take steps to mitigate the tax.
In this instance, it could be more difficult to work towards your financial objectives as you would not retain as much of your wealth. This could mean that you need to adjust your financial plan.
We can support you with this, so you are still able to achieve your desired lifestyle now and in the future, despite any legislative changes.
Get in touch
If you are concerned about future changes to tax legislation, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
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