“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”Jean-Baptiste Colbert, Louis XIV’s finance minister.
Three-quarters of Britons support a wealth tax but while the main parties keep ruling it out, it’s one of those thorny political issues that never really goes away. So, with labour in the ascendance, how likely is it that a future UK government will implement a tax on the very wealthy? What exactly would they tax and how would they judge its price tag? Electronic assets and properties are easy to measure and value, but many other physical assets are more complex to tax. Meanwhile, where does physical gold come into all this?
What is a wealth tax?
A wealth tax is a tax on an individual’s net wealth, typically calculated by taking into account the value of their assets. It is distinct from taxes on how much they earn in income, or generate on the sale of assets, or receive via an inheritance. Proponents of a wealth tax argue that the most affluent in society are the most able to pay tax and should contribute more to the government coffers to promote a more equitable distribution of the tax burden. This is particularly pertinent in societies with wide income disparity.
Opponents argue that a wealth tax discourages the accumulation of wealth (or the removal of existing wealth to another country), and the actual process of administering a wealth tax is very difficult.
What gets taxed?
The composition of a wealth tax are different for every country or jurisdiction, but theoretically all assets owned could count towards the value of the wealth being taxed. This includes real estate (homes, commercial real estate, and other physical property), financial assets (like cash, stocks, bonds and other financial instruments of value), personal property (including vehicles, jewellery, art, antiques, collectibles and gold), retirement accounts, trusts and even the value of your life insurance policy.
How is it taxed?
There are various ways to implement a wealth tax, including a one-off payment or an annual tax on wealth. Spain has had a wealth tax on and off for decades and it is generally administered as an annual tax. Most wealth taxes, including the systems in Spain, Norway and Switzerland, are progressive, which means the higher the value of your wealth the higher the tax you pay on it. There are also sometimes allowable deductions, which refer to assets that don’t need to be counted. For example, some wealth taxes allow you to exclude the home you live in, or your pension, while most will deduct your debt, including the remaining value of your mortgage, from the wealth calculations.
It’s actually very hard to implement a wealth tax. For income tax, countries already have clear and enforceable tax laws, efficient systems for filing and processing returns and robust enforcement mechanisms. But a wealth tax is fraught with difficulties, not least the process of valuing assets and the administrative costs necessary to be effective.
Determining the value of various assets owned by individuals can be complex. Different asset classes, such as real estate, privately held businesses, art, and collectibles, often require specialized valuation methods. But the process of valuation needs to be accurate if the tax is to be seen as fair and effective.
Implementation can also be expensive. Governments need to invest in systems for asset valuation, taxpayer reporting, and enforcement, and the cost of these must not outweigh the income generated by the tax itself.
Discover Gold’s Unique Tax Advantage
Most investments are subject to some form of taxation, but physical gold can be totally free of VAT and capital gains tax.
Then there is the concern about what lengths people will go to avoid paying the tax, including strategies to minimize the wealth they need to report or exploiting loopholes in the tax code. And, of course, there is the possibility that a wealth tax might impel some people to leave the country for one with a more benevolent tax system. Norway, which has had a wealth tax for many years, increased the percentage it siphoned from the wealthy in 2022 and 30 billionaires have reportedly left the country since then. Many have gone to Switzerland which still imposes wealth taxes by region, but these are lower (approximately 0.3%-0.5%) than the Norwegians (1%-1.1%).
How likely is a wealth tax in the UK?
As recently as August, the Labour shadow chancellor ruled out implementing a wealth tax if the Labour party win the next election. Does that mean it won’t happen? Not necessarily considering many a definitive pledge has been rescinded by future governments once in power. It’s also not a cinch that Labour will win next year. The fact is that there is societal support for a wealth tax. According a YouGov poll published at the start of this year, three-quarters of Britons support a wealth tax on millionaires.
The poll covered a range of scenarios and the two that gained the most support were a wealth tax of 1% on wealth above £10 million (78% support) or 2% tax on wealth above £5 million (73% support). There was less support for a tax on wealth above £500,000, which would affect around 8 million people. Meanwhile the TUC (Trades Union Congress) suggested in August that a wealth tax on just the richest 0.3% of the population could raise £10 billion for the government coffers.
If, as the polls suggest, Labour does wrest power from the Tories at the next election, their tax policies will be closely watched. Their stated preferred method of raising funds is to encourage growth, from businesses in particular. The shadow chancellor told the Sunday Telegraph in August that Labour would do “whatever it takes” to attract business investment into the UK, rather than put up income or capital gains tax.
Some people would argue that capital gains tax and inheritance tax are in fact types of wealth tax. CGT is paid on the gains accrued on a particular asset when you come to sell it. It payable on personal possessions (except your car) over the value of £6,000, so jewellery, art antiques etc, as well as property that isn’t your main home and shares.
Whatever the tax regime, views on wealth taxes tend to ebb and flow with the fortunes of society. In the current inflationary environment where many middle and lower income households are still struggling with the rising cost of living and shrinking social services, a wealth tax that enables the government to provide much-needed support will be looked on favourably. In times of prosperity and growth, the calls for a wealth tax are far more muted.
Where does gold fit in the wealth tax debate?
If, or when, it comes time to develop a wealth tax, the easier assets to identify and value, like electronic assets or property, will be the most likely to come under scrutiny first. That’s not to say other assets won’t be included, but if you are worried about how easily governments can directly access digital assets to see what you’ve got – and potentially directly take what they want – then physical assets are the way to go.
But even with physical assets, it’s important to consider the tax implications, liquidity, security of storage, and of course the expected growth of the investment. Gold offers advantages in all these areas, with the option of tax-free gold depending on individual circumstances, excellent liquidity, secure storage options and a thousand-year history of maintaining value over the long term.