THE WEALTH (TAX) OF NATIONS… BY THE EUROPEAN COMMISSION

Introduction

Some tax reports arrive with a thud. This one arrives with a small convoy.

The European Commission has published a study entitled Wealth Taxation, Including Net Wealth, Capital and Exit Taxes.

It is hardly beach reading… unless you’re very strange.

But it matters.

Because the policy question lurking behind the report is simple enough:

“if wealth has become more concentrated, and governments are still under pressure to raise money without just squeezing work, consumption and companies ever harder, what can be done about capital and wealth?”

The study has been carried out for the Directorate-General for Taxation and Customs Union (“DG TAXUD”). It brings together three things:

• a literature review: in plain English, a survey of what economists, lawyers and tax policy specialists and other talking heads have already said about these taxes, including the arguments for them, the arguments against them, and the evidence on avoidance, migration, investment and revenue;
• a comparative mapping of wealth-related taxes across EU Member States; and
• seven net-wealth-tax case studies: Austria, Germany, France, Norway, Switzerland, Spain and Colombia.

Its purpose is not to prescribe a single model. This is very much a Brussels report, not a revolutionary pamphlet. It assesses when taxes on wealth and capital can raise revenue and improve fairness without creating excessive distortions or administrative problems.

That studied non-prescription is also familiar from the UK’s Wealth Tax Commission. The Commission’s work did not say “here is the one true wealth tax”; rather, it modelled possibilities and tried to identify the design choices that would make such a tax more or less workable. In tax policy, that is often the polite way of saying: “This could raise a lot of money, but only if you do not bugger it up before it starts.”

In this article, I will use the EC study as the spine, but will also weave in some points from my previous articles on the UK Wealth Tax Commission, the “Billionaire Patriot” and the Dutch proposals on unrealised gains.[1]

What is a wealth tax?

The first trap is the phrase “wealth tax”.

People often use it to mean a single (and usually new, standalone) annual tax on the net wealth of the rich.

But wealth taxation is much broader than that.

The EC study covers five different ‘versions’:

• Net wealth taxes: an annual tax on a person’s net assets above a threshold. Think of Spain, Norway or Switzerland. This is the usual, ‘totemic’ version that is put forward by enthusiasts.
• Recurrent taxes on unrealised capital gains: a tax on increases in asset values even if the asset has not been sold. This is the mark-to-market or accrual idea. It can be attractive in theory and a nightmare in practice.
• Non-recurrent taxes on realised capital gains: the familiar capital gains tax model. You sell an asset, realise a gain, and the taxman turns up with a small net.
• Inheritance and gift taxes: taxes on wealth as it moves between generations or between individuals, whether on death or during life.
• Exit taxes: taxes that seek to capture gains built up while someone was resident or while an asset was within a country’s tax net, before that person or asset moves away.

This is important because the UK already taxes wealth in a number of ways.

We tax transfers of wealth through inheritance tax.

We tax capital returns through capital gains tax.

We tax income returns from wealth through income tax.

We tax property purchases through SDLT.

We also have more specialist (and rubbish) charges such as ATED where expensive residential property is wrapped in a company.

So, yes, we already tax wealth.

The better question is whether we tax it coherently.

At present, the UK does not generally have a tax that is levied simply because a person has wealth. Instead, we have a patchwork blanket: IHT, CGT, SDLT, income tax on returns, and various anti-avoidance regimes stitched together in a way that sometimes keeps people warm and sometimes leaves both feet poking out of the end.

This is where the EC report becomes interesting. Its message is not that Europe lacks a magic annual wealth tax. It is that many countries have a fragmented and porous approach to taxing capital. That sounds rather familiar.

The EC study

The study starts from a clear empirical backdrop: wealth in the EU has grown and become more concentrated.

In 2023, the richest 10% held 60% of household wealth, up from 57% in 1995. The top 1% increased its share from 22.6% to 25.0%.

The rise is not uniform across Europe, but the broad direction is that wealth concentration has become an increasingly structural feature of the European economy.

However, the very top has not pulled away as dramatically as in some non-EU countries.

The report then frames the main question as a design question. Not “Are wealth taxes good or bad?” But “Which wealth-related tax, with what base, thresholds, valuation rules and enforcement, can work in a given institutional setting?”

I am not sure that is the question on everyone’s lips.

The question on most lips is probably closer to “Can we tax billionaires without them leaving, hiding everything, or hiring someone cleverer than us?”[2]

But as a technical question, the EC has a point. Across all five taxes, outcomes depend heavily on four things:

• tax design;
• behavioural responses;
• administrative capacity; and
• international cooperation.

In practice, the study finds that most wealth-related taxes in Europe generate modest revenue.

Its explanation is that their effectiveness has often been neutered by exemptions, reliefs, preferential regimes and weak enforcement.

In other words, the problem is often not that wealth cannot be taxed.

The problem is that governments announce a tax, panic, add carve-outs, create special treatment for favoured assets, underfund the tax authority and then appear surprised when the result is Swiss cheese rather than a revenue generating machine.

New wealth taxes

On net wealth taxes, the study is more conditional than ideological.

It rejects the idea that broad annual wealth taxes necessarily fail. However, notably, it also concedes that they are not the easy revenue machines that they are often portrayed as by their advocates.

It states that performance depends less on the instrument itself than on design and administration.

The most workable versions target only the very wealthy, use high thresholds, apply broad and coherent tax bases, and rely on enforceable valuation rules plus good information on asset ownership.

This is also where the UK Wealth Tax Commission work fits neatly.

Its most eye-catching illustrations involved a one-off wealth tax rather than an annual one. It modelled, for example, a 5% tax spread over five years, with thresholds such as £500,000 or £2 million of net assets per individual.

The sums were enormous.

But the key design point was just as important: exceptions and exemptions should be resisted if the tax is to raise real money.

That is where the politics becomes incendiary.

If pensions, main residences and business assets are included, the tax base is broad and the revenue can be serious.

If those assets are excluded, the tax becomes easier to sell but much easier to avoid and much less effective. This is the permanent wealth-tax trade-off.

The EC study’s country examples make the same point.

• Switzerland is presented as the clearest example of a wealth tax that has endured because of stable institutions, predictable valuation practices and administrative capacity. It is also probably more palatable because it sits within a wider Swiss fiscal bargain. Wealth tax rates are generally low, the system is long-established, and private capital gains on many movable assets are not taxed in the same way as in some other countries. But that is only part of the story. The study’s main point is that Switzerland has administrative habits, registers and tax culture that make the tax feel routine rather than revolutionary.
• Spain shows how regional or local tax competition can hollow out the base. Some regions cut or credited away liabilities, encouraging avoidance and relocation. The later “solidarity tax” was introduced at national level to restore consistency.
• Austria and Germany illustrate how wealth taxes can be undermined by outdated real-estate values, inconsistent treatment of assets, banking secrecy and weak enforcement. In both countries, the taxes came to be seen as unfair and constitutionally vulnerable.
• France shows a different failure mode. Its tax looked progressive on paper but was weakened by exemptions for professional assets and by caps that the very wealthy could use to reduce liabilities sharply.
• Norway shows that a recurring wealth tax can persist, but only with robust administration and acceptance of trade-offs.
• Colombia shows that a wealth tax can be repeatedly revived for revenue and equity reasons, but also how vulnerable it is to offshoring, bunching and under-reporting when enforcement is patchy.

The general lesson is that fragmented or concessionary designs produce low revenue, weak redistribution and declining legitimacy.

It is also a warning to anyone who thinks the UK could simply bolt on an annual wealth tax and call it a day.

If it is full of exclusions for homes, pensions and businesses, it may not raise enough.

If it includes homes, pensions and businesses, it becomes a political bonfire.

If it is one-off, people will say it is extraordinary.

If it is annual, people will say it is permanent.

And if it is badly administered, the well-advised, and their advisers, will treat it as a puzzle to be solved.

Recurrent taxes on unrealised capital gains

In respect of unrealised capital gains, the study is intellectually sympathetic, but when it comes to practicality it is more cautious.

In theory, taxing accruals rather than waiting for realisation would reduce the lock-in effect and improve horizontal equity between labour income and capital income.

It would also address a real problem in modern capital taxation in that the very wealthy do not always need to sell assets to enjoy economic benefit from them.

If your assets rise in value, you may be able to borrow against them, fund your lifestyle, and avoid triggering a realised gain. No sale, no CGT. Nice work if you can get it.

This is the “tax the bird in the hand” problem.

Ordinary income is the bird in the hand.

Unrealised appreciation may be the two birds in the bush.

But for the very wealthy, those birds can start looking suspiciously like a flock.

But the study finds that no EU Member State runs a broad accrual-based system. The reason is not lack of logic, but implementation difficulty:

• frequent valuation of non-listed businesses and real estate is hard;
• asset prices are volatile; and
• paper gains can create liquidity and fairness problems when no cash has been realised.

Where such taxes exist, they are narrow and tied to settings where valuation is observable or where smoothing and deferral mechanisms can be used.

The Netherlands provides the contemporary cautionary tale. As I discussed in my article on the Dutch Box 3 proposals, the Dutch system was pushed toward reform because the old deemed-return model had run into the courts.

The new model aims to tax actual returns, and for many liquid assets that includes annual value changes, whether or not the asset has been sold.[3]

That is the theory.

The mechanics are less cuddly.

A portfolio can rise 25% in year one, creating a tax charge, and then fall in year two.

A system can allow losses to be carried forward, but that does not eliminate the fact that the taxpayer may already have had to find cash.

Time value of money matters. Liquidity matters. Volatility matters.

The Dutch proposal also recognises the obvious problem by using a two-track approach. Many liquid financial assets would be taxed on a capital-growth basis, while immovable property and some start-up shares would be closer to a realisation-based capital gains model.

Even so, criticism has focused on complexity, administrative burden and the difficulty of making such a system workable for ordinary taxpayers as well as the tax authority. As a result, they have ‘gone back to the drawing board’.

This is precisely the EC study’s point.

Accrual taxation may work in specific, well-defined contexts. For broader purposes, countries usually pursue the same aims through stronger capital gains taxation, anti-deferral rules or notional-return systems.

Or, to put it another way, taxing paper gains is much easier in word than it is in deed.

Non-recurrent taxes on realised capital gains

That is one reason the report gives substantial weight to non-recurrent taxes on realised capital gains.

These taxes already exist pretty much everywhere in the EU and are therefore more realistic reform vehicles.

In the UK, this is familiar territory. Sell shares, sell a second home, sell a business, and CGT will enter the chat.

But design varies widely, and many Member States exempt or favour owner-occupied housing, long-held assets and business assets.

Some of those reliefs have policy justifications, but they also allow large amounts of capital profits, especially at the top, to escape full taxation.

The report accepts that higher capital gains taxes can reinforce lock-in. In other words, if tax is only due when you sell, then a higher rate gives you a stronger reason not to sell. It also accepts that tax cuts can stimulate some investment transactions, especially venture and start-up finance.

Still, it says the real-economy effects are usually smaller than political rhetoric suggests. The bigger weakness is incomplete coverage. Unrealised gains are heavily concentrated among the wealthy, and realisation-based systems allow strategic timing of sales and losses.

This is where the debate often becomes too binary. The choice is not simply between a shiny new wealth tax and doing nothing.

A more realistic reform agenda might involve broader CGT bases, fewer distortive reliefs, better anti-deferral rules, stronger reporting, and perhaps a tougher approach to arrangements that convert capital appreciation into spending power without a sale.

The study therefore leans toward improving capital gains taxation rather than assuming a brand-new wealth tax must do all the heavy lifting.

In many countries, that may be more administratively robust than trying to build a wealth tax from scratch.

Inheritance and gift taxes

Inheritance and gift taxes occupy a special place in the report because they are the most direct way to tax intergenerational transfers and address equality of opportunity.

The study stresses that inheritances are becoming macroeconomically more important again and are highly concentrated.

Seventeen EU Member States still levy inheritance or estate taxes, and where they exist they are usually “double-progressive”. This means that rates generally rise with the size of the transfer and also with the distance of kinship, favouring spouses and direct descendants.

But here too the effective base is often much narrower than the headline schedule suggests.

Personal allowances, preferential valuation, reliefs for business assets and housing, and poor integration of gifts with bequests have eroded both progressivity and revenue.

The UK reader may now be thinking of inheritance tax, business property relief, agricultural property relief, potentially exempt transfers, excluded property and the wider alphabet soup of planning. Quite right. IHT is a wealth tax that nobody likes to call a wealth tax.

Even so, the report sees inheritance and gift taxes as one of the strongest candidates for reform.

That is because their adverse effects on labour supply, wealth accumulation and entrepreneurship appear modest compared with the planning and avoidance they currently invite.

Its recommendation is not simply “tax inheritances more”. Instead, it calls for greater alignment between lifetime gifts and bequests, curb overly generous business reliefs, revisit step-up-in-basis-type provisions where relevant, and reinforce reporting and cross-border enforcement.

The study also notes that the coming “great wealth transfer” is likely to make this base even more important. In other words, if governments are serious about taxing wealth, they cannot ignore the point at which wealth actually moves.

Exit taxes

Exit taxes are treated less as a redistributive instrument than as a supporting one.

Their role is to protect the domestic capital gains base by taxing gains that accrued while the taxpayer or asset was under a country’s taxing jurisdiction before residence or assets move abroad.

The report finds wide variation across Member States in thresholds, covered assets, timing rules and deferral options, but a shared logic: where they exist, exit taxes aim to stop accrued gains from disappearing untaxed.

Because EU law protects free movement, well-designed exit taxes usually involve deferral or instalment options and must be proportionate. The report does not present them as a large standalone source of revenue. Instead, it treats them as a supplemental safeguard within a broader capital-gains system.

Evidence on behavioural responses is limited, which is an important caveat. Any proposal in this area should be honest about that. The study suggests that high-wealth migration is rarer than often claimed and that movements are more often driven by attractive destination regimes than by exit taxes themselves.

That sounds plausible, but the politics are delicate. If a country announces a tax on wealthy leavers, the leavers may be few, but the headlines will be many.

I have previously written about a UK exit tax here.

Administration is not a footnote

Across all five taxes, the report returns repeatedly to the same institutional message in that administration matters as much as statutory policy.

Comprehensive asset registers, third-party reporting, digitalisation, specialist high-net-worth units, automatic exchange of information, and workable anti-avoidance rules are not peripheral details. They are preconditions for effectiveness.

Without them, wealth-related taxes are too easy to avoid or evade, especially through offshore structures, debt manipulation, preferentially treated assets, or regional relocation.

That is why the study is sceptical of simple headline claims about how much any one tax could raise. In Europe, it is saying, weak institutional design has often mattered as much as tax rates.

This is also the uncomfortable lesson for the UK. A wealth tax that depends on valuing everything, finding everything and resisting every lobby’s plea for special treatment is not just a tax policy. It is an administrative project.

And if that infrastructure is not properly constructed, then any tax will not be properly harvested.

Conclusion

The broader strategic conclusion is especially important.

The report does not say that Europe should simply reintroduce annual wealth taxes everywhere. Its preferred architecture is more layered.

Comprehensive taxation of capital income and capital gains, combined with robust inheritance and gift taxation, should form the backbone of a serious system for taxing wealth.

A broad-based net wealth tax may still be justified, but mainly as a targeted instrument for the very wealthy, particularly in countries where taxes on capital income and inheritances remain underdeveloped.

Put differently, the study’s strongest message is systemic rather than symbolic. Europe’s weakness is not the absence of one magic tax. It is a fragmented and often porous approach to taxing capital.

For the UK, that points to an uncomfortable truth.

We already tax wealth. We just do it inconsistently.

We tax some transfers, some gains, some income returns and some property transactions.

We also hand out reliefs and exemptions that are often politically explicable but fiscally expensive.

So, could a new wealth tax do heavy lifting?

Yes, in principle. The Wealth Tax Commission illustrations showed that.

The Patriotic Millionaires and their Billionaire Patriot cousins certainly think so.

But the EC study suggests the real policy battle is not fought at the level of slogans. It is fought in thresholds, valuation rules, reliefs, deferrals, reporting obligations and enforcement budgets.

That may not sound as exciting as our new Marvel superhero, Billionaire Patriot, emerging from the embers of inflation and low growth.

But that is hardly going to fit on a cape.

[1] https://breakingtax.com/wealth-tax-and-the-amazing-billionaire-patriot/

[2] Of course, many might simply oppose wealth taxation and say ‘good on yer guys…’

[3] https://breakingtax.com/taxing-the-bird-in-the-hand-and-the-two-in-the-bush/