Wealth Tax vs IHT and CGT

 As the UK debates the merits of introducing a wealth tax, it’s useful to look abroad for inspiration. Countries like Norway, Spain, and Switzerland already operate wealth taxes – with varying levels of success. Others, such as the US and much of the EU, rely instead on inheritance tax (IHT) and capital gains tax (CGT) systems. Very few countries run high levels of all three. 

So what lessons can the UK draw from these different approaches, and how do they compare to the current system?

How wealth taxes work in other countries

As they always say, the proof is in the pudding, so how do wealth taxes work in the likes of Norway, Spain and Switzerland?

Norway

Norway operates one of Europe’s most comprehensive wealth taxes, applying from 2025 to individual net wealth above NOK 1.76 million (c. £132,000). Combined municipal and state rates can reach approximately 1.1% in the highest band. While it raises substantial revenue, recent rate hikes have driven high‑net‑worth individuals to relocate abroad.

Spain

Spain’s wealth tax, reintroduced during the financial crisis, applies to individuals with net wealth starting at €700,000. Rates range from 0.2% to 3.5%, with significant regional variation; business assets and primary residences are partially exempt. The Spanish model includes both a national wealth tax and a separate solidarity tax, initially temporary but now effectively permanent.

Switzerland

Switzerland applies a wealth tax at the cantonal level, with no federal wealth tax. Rates are generally low (0.1% to 1%), but the base is broad, and exemptions are modest. Importantly, Switzerland does not have a national inheritance tax or capital gains tax for individuals, although at the cantonal level, there will likely be local tax regulations in these areas. Broadly speaking, wealth tax is a critical component of Switzerland’s revenue model.

Compared to the UK system

Currently, the UK does not have an annual wealth tax. Instead, wealth is taxed indirectly through:

• Capital Gains Tax (CGT): Levied on the profit from the sale of assets, with different rates for residential property and other assets. Effective planning can often defer or reduce liability.
• Inheritance Tax (IHT): Charged at 40% on estates above the £325,000 threshold (or up to £500,000 including the residence nil-rate band). Reliefs for business and agricultural property can significantly reduce exposure in this area.
• Council Tax: Though not a tax on net wealth, council tax is based on outdated 1991 property valuations and is highly regressive. For example, due to outdated 1991 valuations, the effective tax rate on costly London homes is much lower than on many more modest properties elsewhere in the UK.

Wealth Tax vs IHT & CGT: Mutually exclusive?

Few countries attempt to combine high CGT, IHT, and a wealth tax. Most opt for one or two:

• France abandoned its wealth tax in favour of a property-only tax to encourage investment.
• Germany repealed its wealth tax in 1997 due to valuation difficulties and legal challenges.
• Switzerland taxes wealth at the cantonal level; there is no national wealth tax, and inheritance/gift tax and CGT rates for individuals also vary by region.

The UK is unusual in considering layering a national wealth tax on top of already significant CGT and IHT obligations. This raises questions about fairness, duplication, and potential economic harm.

Pros of wealth taxes (and what we can learn)

Advocates argue that well-designed wealth taxes can address systemic gaps in current tax regimes.

• Revenue Potential: Norway and Switzerland demonstrate that modest rates on a broad base can raise reliable revenue, especially when exemptions are minimal.
• Redistribution: Wealth taxes can help address asset inequality, especially in countries with limited estate or inheritance taxes.
• Transparency: Requiring annual wealth declarations can improve tax compliance and help combat evasion.

However, even these benefits depend heavily on careful implementation, political stability, and cross-border cooperation.

Cons of wealth taxes (cautionary tales)

For every success story, there are warnings about the economic and administrative costs of wealth taxes.

• Capital Flight: Norway has seen an exodus of wealthy taxpayers following tax increases. Spain’s high rates have pushed individuals to relocate to regions like Madrid, where exemptions are generous.
• Valuation Challenges: Determining the annual value of illiquid assets, such as private companies or art, is costly and contentious.
• Liquidity Issues: Business owners may be forced to sell equity or draw dividends just to pay their annual bill.
• Administrative Burden: Implementing a fair and enforceable wealth tax requires significant bureaucracy, as seen in France before it repealed its own wealth tax.

These drawbacks show why many countries have opted to reform existing taxes rather than introduce new wealth levies.

Migration tipping point: When do people leave?

Wealthy individuals are often mobile: UK data already shows increased emigration among high earners. If a wealth tax were introduced, particularly without international coordination, it could prompt more to leave. Switzerland’s “lump-sum taxation” for foreigners is one way it mitigates this risk, making it an attractive destination.

At what point do we ask: how long can you keep increasing taxes on the same group before they opt out?

A more sustainable approach?

Rather than bolting on a complex wealth tax, the UK could take a more measured path:

• Modernise council tax by updating property bands and linking them to real market values.
• Tighten CGT rules to align rates with income tax while protecting true investment.
• Reform IHT to close avoidance loopholes but preserve legitimate succession planning.

This would avoid the risks of capital flight and preserve investment incentives, while still addressing fairness and improving tax efficiency.

Conclusion

There is no perfect model for taxing wealth. The Swiss system shows that a low-rate, broad-based wealth tax can be more effective than localised IHT and CGT. The Norwegian and Spanish experiences highlight the dangers of excessive rates and complexity.

For the UK, layering a wealth tax on top of already high CGT and IHT could be economically risky and politically volatile. A smarter approach may be to reform what we already have, with clarity, long-term vision, and a realistic view of global mobility.

Until political incentives shift from short-term gain to long-term stability, true tax reform will remain elusive. But one thing is clear: the answer isn’t simply “tax the rich more”. The question is how to do it without damaging the economy we all rely on.

If you’re a high-net-worth individual, business owner, or advisor, it’s crucial to understand how wealth tax proposals – both in the UK and abroad – could impact your assets, investments, and succession plans. Contact us today to explore tax-efficient strategies and future-proof your financial planning.