Imposing a tax on wealth could result in a £100 billion exodus of assets from the UK economy, the Chancellor has been warned.
Analysis by wealth manager Rathbones suggested that the tax – advocated by left-wing Labour MPs and campaigners – could prompt people to move abroad or shift money into ‘less productive’ assets.
Rathbones said high-earning professional clients were already fleeing to low-tax locations such as Dubai and Singapore as changes to the non-dom tax regime bite.
Oliver Jones, head of asset allocation at Rathbones, said: ‘There is clear evidence that a recurring wealth tax would be economically damaging to the UK.’
Speculation over a series of possible tax changes is growing as the Chancellor looks to repair an estimated £30 billion black hole in next month’s Budget. She has previously ruled out a wealth tax.
The report found that the complexities of setting up such a tax would cost the government £600 million, with ongoing administrative costs estimated at £700 million or more.
The Chancellor is seeking to repair a £30 billion financial black hole
That is because taxing wealth would mean totting up the value of ‘complex and illiquid’ assets – including private businesses, art, and intellectual property for thousands of people – each year.
And the analysis suggested that many would respond by relocating or switching their wealth into assets that may attract lower tax or be exempt from it.
Rathbones pointed to a study of the impact of wealth taxes which found that, at a rate of 1 per cent, it would result in the overall taxable base of assets shrinking by between 7 per cent and 17 per cent.
‘That’s a very large distortion – equivalent to at least £100bn shifting outside the UK or into less productive assets,’ the analysis found.
That could be even greater if – as campaigners are demanding – a 2 per cent tax is imposed on net assets above £10 million.
Simon Bashorun, head of advice at Rathbones private office, said: ‘Changes to the non-dom regime have already slowed the influx of the super-rich – and a wealth tax risk accelerating an exodus of wealthy individuals from the UK.
‘We have highly paid professional clients now looking to relocate to more tax-efficient jurisdictions like Dubai or Singapore. Many others may simply decide not to come here in the first place.
‘In a world where countries are constantly competing to attract wealthy individuals and their tax dollars to bolster economic growth – something the UK is crying out for – we seem to be making it harder for ourselves to win.’
Rathbones said there was a ‘high risk’ that the amount of wealth subject to the tax could flee given that a quarter of the UK’s billionaires are foreign nationals.
Since the 1990s, the number of countries levying wealth taxes has fallen from 12 to three – with just Spain, Norway and Switzerland currently implementing them.
Only Switzerland raises ‘significant revenue’ from them though its entire tax system is structured differently with low taxes on income, dividends and inheritance, Rathbones said.
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