The season for tax speculation is upon us: Sarah Coles

There are already wealth taxes operating elsewhere in the world – including Spain, Switzerland and Norway. They all work differently, so there’s no one single structure to follow. In Spain, there’s a different rate on each slice of wealth – and it rises as your wealth does. In Norway, there’s a largely flat wealth tax – alongside other taxes on investments. Switzerland, meanwhile, focuses on your taxable net worth – so something like that in the UK would exclude ISA savings and investments. It also varies significantly across cantons.

Other countries have wealth taxes that focus on specific assets – including France - which taxes property, Belgium – which taxes securities accounts, Italy – which taxes specific assets held overseas, and The Netherlands – which has a very complex system taxing the estimated returns on assets.

Whichever model the UK chose, there would be problems to solve. If the government brought in an overall tax on wealth, they would need to value everything people own. This would be incredibly difficult and expensive to administer, eating into any tax that’s raised. They could make the process easier by setting a very high bar – focusing on a much smaller number of people who might net significant amounts of tax. This could be why the £10 million figure is being bandied about.

Even if they found a system that could be run fairly cheaply, there’s the risk it changes behaviours – so people do whatever they can to avoid paying the tax, including living elsewhere in the world. If there were specific exceptions, they could afford the expertise to ensure their wealth was structured in a way to minimise the tax. In addition, if people knew assets above a particular value could land them with a tax bill, they might choose to spend the money or give it away. This could end up leaving them short of funds, and unable to cover their costs as they got older.

The government might get around this by making it a one-off tax based on historic holdings, giving people no time to plan to avoid it. The trouble is that hitting people out of the blue by a tax would go down incredibly badly with those affected by it. It would also undermine faith and confidence in the system. It would be particularly painful for those who are asset rich and cash poor, who could find themselves with a huge bill and no way of paying it.

And it’s not as if wealth isn’t already taxed. The UK already has taxes on wealth – including capital gains tax and dividend tax when you invest outside an ISA or a pension – plus inheritance tax. And these taxes have already seen some substantial rises recently. The tax-free allowances for both capital gains tax and dividend tax have already at least quartered since 2022, and when it comes to stocks and shares, the rates of both have been hiked. At a time when the government is keen to see more people investing for the future – and boosting the economy – there comes a point when hefty tax bills risk putting people off.

One area that has been considered before, and wouldn’t deter stock market investment, is council tax. As Chancellor, George Osborne was said to have considered creating new levels of council tax on pricier properties – adding more bands to hike the tax on the most expensive homes. It was eventually dropped as the Conservatives had pledged not to introduce a mansion tax, but the government could choose to explore it again. This doesn’t get around the affordability issue for those who live in larger family homes on lower retirement incomes. For those who would need to sell up to pay a tax bill, this is bound to be incredibly unpopular.

There are no easy wealth taxes, which is why, even if the government explored this territory, it may end up deciding it could do more damage than good. Instead, it may focus again on things like income and spending.

Here there may be signs of a very small shift in the approach. The government has pledged that tax changes wouldn’t hurt ‘working people’, but last weekend the Transport Secretary suggested it was those ‘on modest incomes’ who would be protected from rising taxes, and this was further refined later in the week to ‘average incomes’.

It’s important not to read too much into this, but if the government did reframe the definition of the ‘working people’ protected from tax rises, it could open the door to a change to thresholds or rates on the incomes of higher-paid workers.

None of these things would go down well, so it’s up to the government which unpopular move it chooses to take. At this stage, it’s impossible to tell – which is why we can look forward to more months of speculation before Rachel Reeves unveils the contents of the red box in the autumn.

Government push for investing

This week we haven’t been able to move for new plans to boost investment in the UK. You’d be forgiven for glazing over on the sight of them, given they were shrouded in industry-speak, but if you drill down beyond the jargon, there are some great steps forward.

The rules are changing to allow companies to offer more targeted support to their clients. They’ll be able to make suggestions of things that ‘people like them’ tend to do in similar circumstances. It should help them build the knowledge and confidence to find the right balance of savings and investments for their needs.

There will be changes to risk warnings that investment companies need to share when they talk about investing, so they actively help retail investors understand their options rather than standing in their way of harnessing the power of investment.

There will be new investment opportunities too. Long Term Asset Funds can be held in stocks and shares ISAs from next April. These allow investment in private assets and infrastructure projects, and at the moment are only available through innovative finance ISAs, which are much more niche. This brings them into the mainstream.

There’s also a plan to get the IPO pipeline moving again, halving the time between a prospectus being issued and an initial public offering. There will also be cuts to the red tape involved when companies want to raise extra cash from retail investors or make new corporate bonds available to them.