The tax longlist – 35 ways Rachel Reeves could raise £22bn

Rachel Reeves has said there is a £22bn “black hole” in the public finances, and that she’ll have to raise tax to fill it. Labour are heavily constrained by their pre-election promises, and that makes raising £22bn a challenging endeavour. But certainly not impossible.¹There were originally 29 proposals here; but someone in the comments pointed out I’d missed the, often suggested, idea that we tax capital gain on peoples’ homes. Another noted the financial transaction tax, and another tax on dividend/interest income. Then I added the DST and employer national insurance. Then fiscal drag. That takes us to 35.

This is an updated version of my August article.

I’ve previously written about the case for tax reform, and argued for eight specific tax cuts. This article solely looks at potential tax-raising measures. I’m not an economist, and I won’t discuss the question of whether this level of tax increase at the present time is necessary or desirable.

The problem

How much room for manoeuvre does Rachel Reeves have?

Here’s how UK tax receipts looked in 2023/24 – about a trillion pounds in total:²The source is the latest ONS data.

During the election campaign, Labour ruled out increasing income tax, national insurance, VAT or corporation tax. They’ve committed to reform business rates, so an increase there seems unlikely. The promise not to increase tax on “working people” probably rules out council tax and air passenger duty. Stamp taxes and bank taxes are already probably past the point where more can be raised. Customs duties are complicated by trade treaties. Raising insurance premium tax without raising VAT would be distortive. Raising alcohol duty would be unpopular out of all proportion to its significance. Labour have already planned an increase to oil/gas taxation.

What does this leave? About £100bn of taxes:

It’s hard and perhaps impossible to find £22bn there.

Two solutions we probably won’t see

One solution is to simply break the pre-election promises. It’s happened before. However the promises this time were repeated so often, and made so clearly, that breaking them feels (at least to me) out of the question.

Another solution: radical tax reform.

This could mean land tax reform – for example replacing business rates, stamp duty land tax and council tax with a land value tax. Most people would pay broadly the same tax as before, but those owning valuable land would pay a lot more. I wrote about that here. Sadly I don’t think this is likely to happen – the poll tax casts a long shadow over anything that affects local government taxation.

Another would be radical reform to personal taxation, ending the distortive, unfair and economically damaging gap between the tax treatment of employment income and the tax treatment of other kinds of income. Again, this would be politically challenging.

Tax reform would be welcome – and I’ll be writing more about it soon – but I fear we won’t see much of it in this Budget. And some would say (not unreasonably) that the Government has no mandate for radical changes to the tax system.

The solutions we probably will see

If Ms Reeves isn’t going to break pre-election promises, or opt for radical tax reform, then it’s a matter of scrabbling for relatively small tax increases here and there. Here are items I’d expect to be on the Chancellor’s longlist, in a roughly descending order of likeliness:³Disclosure: my previous attempt to predict the tax actions of this Government was a dismal failure. So please take with a pinch of salt. I’m a tax lawyer, not a political columnist…

• Fiscal drag – £7bn. The FT is reporting that Rachel Reeves is considering freezing tax thresholds until 2028. The idea is that inflation/earnings growth mean we’re all earning more in cash terms, but not in real terms – however tax thresholds stay the same. The result: more and more income, and more and more taxpayers, get dragged into higher rate tax bands. Fiscal drag was very successfully deployed by Blair/Brown (with limited resistance at the time), but then became less relevant as inflation fell. With the resurgence of inflation, and need to raise funding to pay for Covid, the Johnson and then Sunak Governments raised very large amounts with fiscal drag – over £29bn by 2027/28. This has only a limited effect on median earners, but significant tax increases for higher earners. It would be surprising if this new Government doesn’t do the same. Further fiscal drag feels so inevitable that it barely deserves to make this list.
• Pension tax relief – £3-15bn. Lots of people are predicting this. Right now, contributions to a pension are fully tax-deductible.⁴Subject to an annual £60k limit, tapering down to £10k for high earners. If you’re a high earner, paying a 45% marginal rate⁵Or indeed someone on £60k, with an anomalously high marginal rate of 57% thanks to child benefit clawback, or someone on £100k with an anomalously high marginal rate of 20,000%., you get 45% tax relief on your pension contributions. Some view this as unfair, and suggest limiting relief to 30%, or even the 20% basic rate. That could raise significant amounts – £3bn (if limited to 30%) or up to £15bn (if limited to 20%). But withdrawals from a pension, after the tax free lump sum, are taxable at your marginal rate at the time. Offering a 20% or 30% tax deduction for pension contributions, but taxing withdrawals at 40%, isn’t a great deal. High earners may shift their investments to other products. There could be complex second and third order effects. I’d say this is streets ahead of all other tax raising candidates given the large amounts that can be raised, and the ease of implementation. But there’s a catch – applying to defined benefit schemes (meaning, in practice, public sector pensions) is more complicated. And exempting defined benefit/public sector schemes from new rules would be widely – and correctly – seen as unfair. One alternative – fairer, but more complicated – would be to end or restrict the national insurance exemption for pension contributions⁶Which has the disadvantage of in practice only applying to defined contribution pensions. – the IFS has written about this here and/or impose national insurance on pension drawdowns.
• End AIM IHT relief – c£100m. It’s daft that my estate would pay 40% inheritance tax on my share portfolio, but if I move it into AIM shares and live for two more years, there would be no inheritance tax at all. Commercial providers sell portfolios designed solely to take advantage of this. But it’s not just AIM shares – if, like Rishi Sunak’s wife, I hold shares in a foreign company that’s listed on an exchange that isn’t a “recognised stock exchange” then those shares would also be entirely exempt. It’s unclear how much tax would be raised by this; the £1bn figure sometimes quoted appears to be incorrect, as that’s looking solely at the total cost of business relief across all unlisted shares, which will include completely unlisted private companies (which we discuss below). A more accurate figure is likely around £100m.⁷We can roughly ballpark this if we assume £5-10bn of AIM/etc shares are held for IHT purposes, and 3% of all holders die each year in a non-exempt IHT event (i.e. excluding the first spouse). These figures come from discussions with private wealth and AIM specialists – note that Octopus alone manages £1.5bn in an AIM inheritance tax fund. Some AIM investors would move into EIS investments, but they are considerably more volatile and hence less attractive (even dangerous) from an IHT planning perspective. Some people are warning it would crash the market. The flipside: AIM yields are currently depressed by market valuations driven by the tax benefit, not fundamentals. This is an unhealthy state for any market to be in.
• Limit business and agricultural property relief – £1-2bn. Most private businesses – of any size – are exempt from inheritance tax. Protecting small businesses and farms makes sense, but why should the estate of the Duke of Westminster pay almost no tax?⁸The headline and start of the article is misleading – trusts aren’t the reason the Duke of Westminster’s estate paid so little tax – it’s all about APR/BPR. And why should we be creating a weird tax-driven market in woodland? There’s potential for £2bn or more here, for a measure that could fairly be presented as closing loopholes. Other reliefs, e.g. heritage relief, could also be looked at.
• Tax large gifts – £?. The problem with reducing inheritance tax reliefs is that people will rationally respond by giving property to their children. That’s hard for a moderately wealthy person to do with their house, because the “gifts with reservation of benefit” rules mean that you’d then struggle to still live in it. But a very wealthy person owning a large private business could pass it to their children and, provided they live for seven years, the business would completely escape inheritance tax. So, whilst there is already a lot of tax planning around gifts to children, that would explode if BPR/APR were curtailed. There’s also an exemption for gifts which classify as “normal expenditure out of income“, which in practice enables people with large amounts of investment income to make very large untaxed gifts. So those reforms are only rational if at the same time we tax lifetime gifts and cap the “normal expenditure” exemption. To prevent difficult compliance (and difficult politics!) this should only be for large gifts, say over £1m. It would raise additional sums, beyond closing any loophole in new APR/BPR restrictions… but how much is hard to say.
• Pensions inheritance tax reform – £100m to £2bn. If you inherit the pension of someone who died before age 75, it’s completely tax free. But if they died aged 75 or over, the pension provider deducts PAYE, which means up to 45% tax if the beneficiary takes a lump sum (or less if they drawdown the pension over time). This is a very odd result. Simply applying the usual 40% inheritance tax rules could raise about £2bn in the long term (and in some cases would be a small tax cut for beneficiaries of the over-75s).
• Increase capital gains tax – £6bn+. The Lib Dems proposed equalising the rate with income tax, and said it would raise £5bn. At the time I said that, on the basis of HMRC figures, this would cost around £3bn in lost tax.⁹The IFS and others believe the HMRC figures overstate the cost of a significant CGT increase; my understanding is that the dramatic HMRC figures reflect people accelerating gains to escape the increase, and then (after it comes in) deferring gains to try to wait it out. The first effect could be negated if the CGT rise was instantaneous, rather than taking effect from the next tax year. There is a better way, to cut the effective rate of CGT for investors putting capital at risk, but increase it for others. That could even be combined with an income tax cut, and still raise significant sums. I talk about it in detail here.
• Eliminate the stamp duty “loophole” for enveloped commercial property – £1bn+. It’s common for high value commercial property to be sold by selling the single-purpose company in which it’s held (or “enveloped”). So instead of stamp duty land tax at 5%, the buyer pays stamp duty reserve tax at 0.5% of the equity value or if (as is common) an offshore company is used, no stamp duty at all. This practice has been accepted by successive Governments for decades. It would be technically straightforward to apply 5% SDLT to such transactions, and this would raise a large amount – over £1bn.¹⁰We could find no figures that enable a proper estimate to be produced – the £1bn is no more than an educated guess at the lower end of the yield – see the discussion here.
• Increase ATED – £200m+. The “annual tax on enveloped dwellings” is an obscure tax that was introduced to deter people from holding residential property in single purpose companies to avoid stamp duty. As we explain here, it’s currently failing because it’s been set too low, and raises a derisory £111m. There’s a case for tripling it.
• Increase inheritance tax on trusts – £500m. When UK domiciled individuals settle property on trust, the trust is subject to a 6% tax every ten years, and another 6% charge when property leaves the trust (broadly pro rata to the number of years since the last ten yearly charge). These taxes currently raise £1.3bn, on top of the 20% “entry charge” when property goes into trust. This all seems rather a good deal if we compare it to the 40% inheritance tax paid by estates on property that isn’t in trust. So there’s an argument for increasing the rate from 6% to 9% – and that should raise somewhere north of £500m.¹¹Taxpayer responses, and the complexity of trust taxation, mean that determining the actual yield would be complicated.
• Reform R&D tax relief – £3bn. We’ve had series of tax reliefs designed to incentivise research and development. They now cost £7bn per year, but I fear most of this is wasted. R&D tax relief is highly complex – only the most sophisticated companies able to plan R&D with confidence that the relief will apply. And they have been widely abused, with perhaps as much as £10 billion wasted in wrong and fraudulent relief claims; HMRC’s response to that is now blocking legitimate claims. The people who could really do with the relief aren’t getting it. Rachel Reeves could solve all these problems at once. Focus the relief narrowly on significant projects aimed at science and development innovation, with harsh penalties for companies and advisors making indefensible claims. Create a simple and fast pre-clearance process to provide certainty. The aim should be to provide more generous relief for, e.g., bio science, engineering, and tech companies, and no relief for anybody else. Simultaneously promote growth and stop wasting taxpayer funds.
• Push the Bank of England to stop paying interest on some of the QE bonds it holds -c£5bn. This is somewhat esoteric and not strictly tax¹²although it is economically akin to one. – but it does represent a relatively pain-free to raise somewhere around £5bn each year (for the short to medium term). The Bank of England currently pays interest on the reserves that commercial banks place with it. In theory it could raise up to £23bn by dividing the reserves into “tiers”, ceasing to pay interest on one tier, and requiring the banks to continue to keep that tier with the. BoE. Reform UK thought that £35bn could be raised this way – but most observers believe that would destabilise the BoE’s control of interest rates, and somewhere around £5bn is more reasonable. I can’t do justice to this point – there’s a pair of excellent FT articles by Chris Giles and (in more detail) Toby Nangle. Rachel Reeves warned against some of the more maximalist variants of this policy, but has perhaps left the door open to a more minimal approach. What’s not clear is who would ultimately bear the economic cost of such a change (the “incidence” in tax wonk-speak). The banks’ shareholders? Or their customers?¹³When the numbers get large, the answer can’t be the shareholders, because the bank profits aren’t enough to cover the figure. When the numbers are smaller, the answer depends on how competitive the market is for each of the banks’ products – in less competitive areas, banks have more scope to pass on the cost.
• Council tax increases for valuable property – £1-5bn. It’s indefensible that an average property in Blackpool pays more council tax than a £100m penthouse in Knightsbridge. The obvious answer is to “uncap” council tax so that it bears more relation to the value of the property – either by adding more bands, or applying say 0.5% to all property value over £2m. Depending on how it was done, this could raise several £1bn. The argument seems compelling for any Government, and particularly a Labour government. And whilst Labour promised not to change the council tax bands, that was in the context of revaluation, not adding more bands at the top.
• Introduce an exit tax – £unknown. There are two features of the UK capital gains tax system which practitioners take for granted, but which non-specialists often think are peculiar. First, if you arrive in the UK, become UK tax resident, and then immediately dispose of an asset, the UK taxes you on the entire lifetime gain of that asset (even if almost all of that gain accrued when you lived abroad). This is rather unfair and deters some entrepreneurs from moving to the UK. Second, if you spend years building up a business in the UK, then leave the UK and dispose of the business in the next tax year, then the UK taxes none of that gain (even if almost all of it accrued when you live here). It would be rational to end both anomalies, so that the UK fairly taxes UK gains. We should measure the gain from the point at which someone arrives in the UK¹⁴i.e. the base cost should start at market value on the date a taxpayer becomes UK tax resident, not the historic base cost from when they lived abroad and when someone leaves the UK, the gain they accrued here should still be taxable here as and when they sell.¹⁵In other words, a deferred “exit tax”. This would overall be a fairer system. It would also likely raise some tax, because entrepreneurs would no longer be able to escape UK CGT by moving to Monaco five minutes before selling their business.
• Abolish business asset disposal relief – £1.5bn. This is a capital gains tax relief supposedly for the benefit of entrepreneurs. But the Treasury officials forced to create it named it “BAD” for a reason. The benefit for genuine entrepreneurs is limited (a 10% rather than 20% rate). It’s widely exploited. Abolition would raise £1.5bn.¹⁶The source for this and the other reliefs are the tables found here – this one is the CGT tab on the December 2023 non-structural reliefs table.
• Increase vehicle excise duty – £200m+. VED currently applies at various rates for different vehicles, depending on the type of vehicle, registration date and engine sizes. The average for a car is about £200. A £5 increase would raise £200m, and raising £1bn wouldn’t be terribly challenging. However it would impact “working people“.
• Reverse the Tories’ cancellation of the fuel duty rise – £3bn. For years, Governments have been cancelling scheduled (and budgeted) rises in fuel duty. Most recently, the Conservative Government did that in March, forgoing £3n of revenue. There is an infamous OBR chart showing the effect of this. It would be easy to reverse that – but (unlike most of the other tax changes listed here) it would definitely affect “working people“.
• Review VAT exemptions – £1bn+. Many of the VAT exemptions/special rates make little sense and should be abolished. The 0% rate on children’s clothes should be first to go, with child benefit uprated by 10% so that people on low/moderate incomes don’t lose out. This change alone would yield about £1bn.¹⁷0% on children’s clothes costs £2bn/year. It’s hard to find good sources on the average spend on children’s clothes, but estimates range between £380 and £780, suggesting the VAT saving is around 10% of child benefit.
• Increase the digital services tax – £400m. The digital services tax is a flat % tax on large internet businesses’ income from digital services. So, for example, advertising revenue paid to search platforms and fees paid to marketplaces. The rate is currently 2%, and it raises around £800m, so a 1% increase should raise £400m. On the face of it, an easy tax to increase. However there are two good reasons not to. First, most of the economic burden of the tax falls on UK businesses. Second, there are geopolitical complications given that the DST is part of a complex and still-moving international negotiations over the future of international tax. I discussed these in more details when the Lib Dems proposed tripling the tax in their 2024 manifesto. There is a good analysis from TaxWatch here, a House of Commons Library introduction to the tax here, and a National Audit Office assessment of the tax here.

These changes could raise between £21bn and £41bn, depending on how each were implemented, and with significant uncertainties around many of the estimates.

Here are a few more possibilities, which could raise very significant sums but which I think are (for various reasons) unlikely:¹⁸However, please note the caveat about taking my predictions with a pinch of salt – I am not a political columnist.

• Increase employer national insurance – c£8.5bn per % increase.¹⁹I said £7bn on Times Radio on 15 October off the top of my head – my apologies for the error.. Employer national insurance is currently 13.8%. It’s technically very easy to increase and would raise large sums (the £8.5bn figure comes from the HMRC “ready reckoner“). But employer national insurance is one of the worst taxes to raise; it exacerbates the already highly problematic bias against employment in the tax system. The economic burden would mostly fall on employees, and any increase probably breaks a pre-election promise. I wrote about these issues here.
• End the pension tax free lump sum – £5.5bn. On retirement, we can withdraw 25% of our pension pot, up to £268k, as a tax free lump sum. The argument for abolition is that most of the benefit goes to people on higher incomes paying a higher marginal rate. The argument against is that people have been paying into their pensions for decades on the promise of the rules working a certain way, and it’s unfair to now change that (and I agree with this position). Labour also seemed to rule out the change. But it’s an “easy” way to raise lots of tax – limiting the benefit to £100,000 would raise £5.5bn.
• Introduce “sin taxes” on unhealthy food – £3.6bn. An IPPR report recently proposed a “10 per cent tax on non-essential, unhealthy food categories including processed meat, confectionary, cakes and biscuits”, modelled on successful taxes in Hungary and Mexico. As a tax lawyer, my instinct is to be sceptical of such proposals; decades of VAT cake litigation attest to the difficulty of clearing defining different categories of food.²⁰There isn’t just legal pedantry; there’s evidence that definitional problems meant that Mexican consumers switched to equally unhealthy but untaxed products, so that calorie consumption did not change (but there was an impact on sugary soft drink consumption, with a resultant improvement in dental health). There is a concerning gap between the claims from health advocates and the IPPR, and the actual evidence²¹Papers from health organisations report the Hungarian tax positively, but the evidence is much less conclusive. A study in 2021 found that the Hungarian tax had been effective in depressing consumption in economic downturns (when households are economising) but not at other times; and a more recent longitudinal study found that, over the long term, prices were higher but consumption returned to its previous level (and indeed increased). A systematic review in 2021 looked at over 2,000 studies and found no clear effect. The two studies cited by the IPPR are a theoretical modelling study and a review, neither of which refer to the contrary Mexican and Hungarian papers. So whilst taxing “unhealthy food” would be an effective way of raising tax, it is questionable if there would be any health benefits, and the tax would overall be regressive.
• Tax gambling winnings £1-3bn. The US taxes gambling winnings. The UK doesn’t (unless you are a professional gambler so gambling becomes your trade or profession). In theory this would raise £1-3bn.²²Rather unsatisfactorily the source is a private conversation with someone knowledgeable and I can’t provide any further information. It would have two ancillary benefits: (1) discourage gambling (in a way that raising betting duties would not), (2) end the oddity that spread betting isn’t taxable when equivalent derivative transactions are. But there are three big downsides. First, it would be (in my view) unfair to tax gambling winnings without giving relief for gambling losses (as the US does). That reduces the yield. It also creates a relief that would be exploited for tax avoidance and tax evasion.²³Although one could imagine designing a tax to minimise these effects, e.g. automatic deduction of 40% tax from winnings, with winnings and losses reported to HMRC by regulated gambling businesses, and no other losses permitted. Second, it would in practice be regressive, hitting the poor disproportionately. Third, the tax would realistically need to be withheld at source (as it is in the US), which requires a new taxing infrastructure to be created. So, whilst an interesting thought, I can’t see this happening.
• Increase taxes on gambling – up to £2.9bn. The recent IPPR report also proposes increasing gaming duties. This would raise significantly more tax than taxing gambling winnings, and be easy to implement but (I expect) be less²⁴The IPPR’s £2.9bn figure suggests no fall in gambling at all – this appears to be an error. effective at reducing gambling (if that is the aim). Taxing gambling winnings has a direct economic and psychological impact on gamblers, and therefore plausibly reduces gambling. Gaming duties reduce supplier profits, and so only reduce gambling if suppliers respond by closing businesses or increasing odds to protect their margin (and gamblers are price-sensitive).
• Cap tax relief on ISAs – up to £5bn. Cash and shares/stocks in ISAs is exempt from income tax and capital gains tax. This tax relief costs about £7bn of lost tax each year. Most ISAs are small – only 20% hold more than £50,000. But I expect this 20% receive around 80% of the benefit of ISA relief. So in principle the Government could save £5bn by capping relief for the first £50k (or some lesser amount for a higher cap, with diminishing returns setting in fast²⁵Those who say that ISAs should be capped at £1m are engaging in symbolism not tax policy – there are only a few thousand people with £1m ISAs, and most of those will be only a little over the cap. A £1m cap would raise little.). However many would regard this as unfair – they took advantage of a widely promoted Government saving scheme, and now the rules are being changed after the event. I think that’s a compelling argument.²⁶Disclosure: I have an ISA, but not a terribly large one. An alternative approach would be to reduce the £20k annual allowance, which naturally benefits people with the highest disposal income.²⁷The £20k allowance was very generous when introduced in 2017/18, but has since been eroded by inflation. It’s fully used by about 7% of ISA holders, i.e. about 3% of all adults. This however wouldn’t raise very much in the near term; Rachel Reeves may regarding the negative optics as outweighing the small financial benefit.
• Reduce the VAT registration threshold – £3bn. There is compelling evidence that the current £90k threshold acts as a brake on the growth of small businesses, as they manage their turnover to stay under the threshold. Reducing the threshold so everyone except hobby businesses are taxed would raise at least £3bn, and in the view of many people across the political spectrum, could increase growth. The economy as a whole would benefit, and small businesses would benefit in the long term. But in the short term there would be many unhappy small businesspeople. I fear this is, therefore, too difficult for any Government to touch. It would also take time to put into effect – APIs/apps would need to be ready to assist micro-business compliance, and HMRC would need to significantly gear up.
• Raise the top rate of income tax – <£1bn. The top rate of income tax (outside Scotland) is currently 45%. The rate was briefly 50% under Gordon Brown – could we return to that? I would be surprised. The previous 50p rate was in place so briefly that nobody’s quite sure what effect it had… but even in a best case analysis it would raise very little. Raising the top rate is a political signal more than it is a fiscal policy. And any increase would probably break Labour’s campaign pledge not to increase income tax.
• Raise the rate of income tax on dividend and/or interest income – £unknown. It’s sometimes suggested it’s unfair that the top rate of income tax is 45%, but the top rate of tax on dividend income is 39.35%. However dividends are usually paid out of income that’s been subject to corporation tax, meaning the actual effective rate of tax on dividends is around 56%. And even the 39.35% rate is one of the highest in the developed world.
• CGT on death – £unknown. There’s been considerable focus in the US on the ability of the very wealthy to use a “buy, borrow, die” strategy to avoid tax. A wealthy tech entrepreneur (for example) could be sitting on shares with a large capital gain, and so would face a considerable capital gains tax bill if they sold their shareholding. So what they do is borrow against their shares. They then receive a lump sum, just as they would if they had sold the shares, but with no tax at all. Of course they are paying a funding/interest cost, but this will usually be much lower than the CGT. Eventually they die, their children inherit the shares, but the historic capital gain disappears, so when the children sell, they are only taxed on the gain during their period of ownership. The original capital gain is wiped out.²⁸Tax people would say it is “rebased” to current market value. The same strategy works in the UK.²⁹Although it is less significant at the top end given we have fewer entrepreneurs, and less significant at the “bottom” end of wealth because it’s harder to obtain a margin loan. But people certainly do it with real estate. One option for Rachel Reeves would be to trigger a CGT charge on death. However, the high resultant overall rate (up to 52%) could be politically unattractive.³⁰The political problem is that if someone owns a £1m portfolio that they bought for, say, £100,000 20 years ago, capital gains on death would be £252k and inheritance tax would be £400k – an overall effective tax rate of 65%. That is actually a rational result, because that’s what the rate would have been if they’d sold their house before dying. But politically I suspect the fear of an upfront high rate means this is a non-starter. The alternative would be to change the law so that, when you inherit property that is sitting at a capital gain, you inherit the capital gain too. So if you sell the property immediately you pay the same CGT as the original owner would have done. That seems a pretty rational change.³¹With the inheritance tax liability then slightly lower to reflect the fact that the asset being inherited is pregnant with CGT. Alternatively the inheritance tax liability could be unchanged, but the CGT base cost adjusted to “credit” the IHT paid on the gain – a messier result.
• Wealth tax – £1bn to £26bn. Many campaigning groups are keen on a wealth tax targeted at the very wealthy – e.g. people with assets of more than £10m. But the practical experience of wealth taxes is that they’ve been failures, with only a handful of countries retaining a wealth tax³²The exception is the Swiss wealth tax – but that is charged at a low rate on most people, not just the very wealthy, and so has little in common with the campaigners’ proposals. Switzerland has no capital gains tax or inheritance tax, and income tax on dividends is easily avoided. So the Swiss wealth tax in practice operates as a kind of minimum tax on wealth – but even with that tax, many Swiss cantons tax wealth much less than the UK (which is why so many very wealthy people move there).. The recent Spanish tax – which adopted the modish idea of only hitting the very wealthy – raised a pathetic €630m. It’s another failed wealth tax to join a long list. The academics on the Wealth Tax Commission recommended against an annual wealth tax, but supported a one-off retrospective tax raising up to £260bn over ten years. My feeling is that such an extraordinary tax would require a specific political mandate, which Labour do not have. And one-off taxes have a habit of not in fact being one-offs.
• CGT on unrealised gains – £unknown. Another proposal popular with campaigners is to tax capital gains annually, regardless of whether they are realised. No developed country has implemented such a tax. The Dutch tried, but their Supreme Court held it was contrary to the European Convention on Human Rights.³³I am sceptical this is consistent with ECHR caselaw and I doubt a UK court would take the same approach, although I am sure it would consider the Dutch Supreme Court’s reasoning carefully. Kamala Harris is currently proposing a similar tax in the US, albeit only for taxpayers with wealth of $100m or more. There are four significant problems: valuation, dealing with unrealised losses, people leaving the UK before they hit the threshold, and other avoidance if (as is probably inevitable) some asset classes are excluded. If the US tax is implemented, and proves a success, then the UK (and others) may follow. Until then, I doubt Rachel Reeves would want to experiment with this one.
• Financial transaction tax – £7bn+.³⁴This was added thanks to a comment on X. This is another very popular tax amongst campaigners.³⁵I confess I find this depressing. The problems with an FTT are not obscure; they’re well known amongst economists and tax policy specialists. The question isn’t whether you agree or disagree with the tax, it’s whether it’s workable – and I’m not aware of anyone with expertise who thinks it is. NGOs like Oxfam wasted many £m of their donors’ money on a hopeless and counterproductive cause. And columnists who should have known better hailed the politics without thinking about the actual impact. The usual argument goes: there is a huge volume of financial transactions. Placing a small tax on each of them would be barely noticed, but raise a lot of money. In 2019, Labour claimed they could raise £7bn. The catch lies in what precisely a “financial transaction tax” is. The idea was originated by James Tobin in 1972 – his idea was to “throw sand in the wheels” of international currency markets and tax every currency transaction in the world. The tax would “cascade” as trades flowed through currency markets, essentially ending them in their current form. That was Tobin’s aim – he wasn’t trying to raise revenue. Existing taxes on financial transactions, like UK stamp duty or the French, Italian and Spanish taxes³⁶The French, Italian and Spanish taxes were called “financial transaction taxes” to catch the wave of popularity of such taxes at the time. They are, however, essentially more limited versions of UK stamp duty reserve tax, and nothing like actual FTTs., are quite different. They apply once, to the end-purchaser of securities, and not to market-makers and intermediaries – there is no “cascade effect”. They are designed not to deter transactions (although they have this effect to some degree) but to raise revenue. An actual FTT would necessarily end markets in their current form. The European Union spent years fruitlessly trying to come up with an FTT that didn’t have that effect – it failed, and gave up on the project. In my past life, I wrote about the problems with Labour’s proposal, and the problems with the EU proposal. UK stamp duty is already the highest such tax in any large economy. The question isn’t whether it should be increased – it’s whether we’d raise more tax revenue by abolishing it.
• CGT on peoples’ homes – £31bn.³⁷This one wasn’t in the original list, but was picked up in a comment below – for which, thank you. We have a complete and unlimited capital gains tax exemption on homes – our “main residence”. On the face of it, that costs £31bn – quite the sum. So why not remove or limit the exemption? Because then you’re creating a cost for people moving house. Even if they’re moving from one house to another that’s similarly priced, they’d potentially have a large tax on their historic gain (a gain which has done them no good). It would make the current problems with stamp duty even worse. So realistically you can’t just tax all home sales – you have to introduce exemptions of some kind… so the £31bn figure is illusory. For this reason, those countries that in theory impose CGT on homes, in practice end up collecting little, thanks to a variety of exemptions, loopholes, and rules that let you roll the gain into your next house. Some people have suggested we just tax someone’s “final” sale. Good luck defining that. And the problem then is that people simply won’t sell, as death/inheritance wipes out all gains. You’re locking up the housing market, increasing what’s already a serious problem. Or you just tax at death, which is better dealt with by a general CGT reform. None of these ideas are very workable. This, plus the political reaction such a change would make, means I’d be amazed if it ever happens… although possibly maybe it’s something we could see for the very highest value properties?
• Means test the State pension – £1bn+. The State pension pays out about £11,500 per year. It’s easy to think that’s an irrelevant amount to wealthy retirees, and we should means test the pension to stop them benefiting. Given the Government spends about £138bn each year on pensions, blocking even just the wealthiest 1% from pensions would raise over £1bn. It seems a slam dunk. But that makes an elementary mistake³⁸Which I made myself until looking into the figures properly – a pension of £11,500 per year, updated with the “triple lock“, is actually a highly valuable asset. It would cost the average 66-year old somewhere over £250,000 to buy an asset like that.³⁹Annuities can be purchased in the market, but none have anything like the “triple lock”, so precisely pricing such a product is hard. A number of people with expertise kindly commented when I asked about this on social media, with estimates ranging from £250,000 to £400,000.⁴⁰An important caveat is that whilst this figure fairly reflects the commercial cost of such a pension, it doesn’t reflect the cost to the Government of providing it. In part because the Government has access to much cheaper funding than any commercial provider; in part because government will usually collect tax from the pension that it is paying (perhaps income tax on the pension itself; definitely VAT on purchases).⁴¹Some people thought that a pension can’t be valued in this way, because the government could stop paying it at any time. That’s true in principle, but it’s also true in principle that a commercial annuity could stop paying, e.g. because the insurer goes bust. That is probably more likely than government suddenly ceasing to pay existing pensions. A family “just” in the wealthiest 1% has average assets of £1.9m per adult. So removing their pension would effectively expropriate over 10% of their wealth. That feels unjust. I doubt any Chancellor would do this.
• Increase the rate of VAT – £8bn+. This is one of the easiest way to raise significant sums – HMRC estimate that a 1% increase in VAT raises £8.6bn. The Cameron and Major Governments raised VAT upon coming into office, after saying they wouldn’t during the previous election campaign. But this feels very unlikely now.

My estimate of the actual yield of these “unlikely” items is between £18bn and £25bn, although some of the figures used by campaigners are much higher (£72bn+)

I believe this covers most of the serious suggestions that are out there – but if I’ve missed anything, or you have any new ideas, do please get in touch (or comment below).

Image by LGNSComms – own work, CC BY-SA 4.0, and photo-edited by Tax Policy Associates Ltd.

• 1
  There were originally 29 proposals here; but someone in the comments pointed out I’d missed the, often suggested, idea that we tax capital gain on peoples’ homes. Another noted the financial transaction tax, and another tax on dividend/interest income. Then I added the DST and employer national insurance. Then fiscal drag. That takes us to 35.
• 2
  The source is the latest ONS data.
• 3
  Disclosure: my previous attempt to predict the tax actions of this Government was a dismal failure. So please take with a pinch of salt. I’m a tax lawyer, not a political columnist…
• 4
  Subject to an annual £60k limit, tapering down to £10k for high earners.
• 5
  Or indeed someone on £60k, with an anomalously high marginal rate of 57% thanks to child benefit clawback, or someone on £100k with an anomalously high marginal rate of 20,000%.
• 6
  Which has the disadvantage of in practice only applying to defined contribution pensions.
• 7
  We can roughly ballpark this if we assume £5-10bn of AIM/etc shares are held for IHT purposes, and 3% of all holders die each year in a non-exempt IHT event (i.e. excluding the first spouse). These figures come from discussions with private wealth and AIM specialists – note that Octopus alone manages £1.5bn in an AIM inheritance tax fund. Some AIM investors would move into EIS investments, but they are considerably more volatile and hence less attractive (even dangerous) from an IHT planning perspective.
• 8
  The headline and start of the article is misleading – trusts aren’t the reason the Duke of Westminster’s estate paid so little tax – it’s all about APR/BPR.
• 9
  The IFS and others believe the HMRC figures overstate the cost of a significant CGT increase; my understanding is that the dramatic HMRC figures reflect people accelerating gains to escape the increase, and then (after it comes in) deferring gains to try to wait it out. The first effect could be negated if the CGT rise was instantaneous, rather than taking effect from the next tax year.
• 10
  We could find no figures that enable a proper estimate to be produced – the £1bn is no more than an educated guess at the lower end of the yield – see the discussion here.
• 11
  Taxpayer responses, and the complexity of trust taxation, mean that determining the actual yield would be complicated.
• 12
  although it is economically akin to one.
• 13
  When the numbers get large, the answer can’t be the shareholders, because the bank profits aren’t enough to cover the figure. When the numbers are smaller, the answer depends on how competitive the market is for each of the banks’ products – in less competitive areas, banks have more scope to pass on the cost.
• 14
  i.e. the base cost should start at market value on the date a taxpayer becomes UK tax resident, not the historic base cost from when they lived abroad
• 15
  In other words, a deferred “exit tax”.
• 16
  The source for this and the other reliefs are the tables found here – this one is the CGT tab on the December 2023 non-structural reliefs table.
• 17
  0% on children’s clothes costs £2bn/year. It’s hard to find good sources on the average spend on children’s clothes, but estimates range between £380 and £780, suggesting the VAT saving is around 10% of child benefit.
• 18
  However, please note the caveat about taking my predictions with a pinch of salt – I am not a political columnist.
• 19
  I said £7bn on Times Radio on 15 October off the top of my head – my apologies for the error.
• 20
  There isn’t just legal pedantry; there’s evidence that definitional problems meant that Mexican consumers switched to equally unhealthy but untaxed products, so that calorie consumption did not change (but there was an impact on sugary soft drink consumption, with a resultant improvement in dental health).
• 21
  Papers from health organisations report the Hungarian tax positively, but the evidence is much less conclusive. A study in 2021 found that the Hungarian tax had been effective in depressing consumption in economic downturns (when households are economising) but not at other times; and a more recent longitudinal study found that, over the long term, prices were higher but consumption returned to its previous level (and indeed increased). A systematic review in 2021 looked at over 2,000 studies and found no clear effect. The two studies cited by the IPPR are a theoretical modelling study and a review, neither of which refer to the contrary Mexican and Hungarian papers.
• 22
  Rather unsatisfactorily the source is a private conversation with someone knowledgeable and I can’t provide any further information.
• 23
  Although one could imagine designing a tax to minimise these effects, e.g. automatic deduction of 40% tax from winnings, with winnings and losses reported to HMRC by regulated gambling businesses, and no other losses permitted.
• 24
  The IPPR’s £2.9bn figure suggests no fall in gambling at all – this appears to be an error.
• 25
  Those who say that ISAs should be capped at £1m are engaging in symbolism not tax policy – there are only a few thousand people with £1m ISAs, and most of those will be only a little over the cap. A £1m cap would raise little.
• 26
  Disclosure: I have an ISA, but not a terribly large one.
• 27
  The £20k allowance was very generous when introduced in 2017/18, but has since been eroded by inflation. It’s fully used by about 7% of ISA holders, i.e. about 3% of all adults.
• 28
  Tax people would say it is “rebased” to current market value.
• 29
  Although it is less significant at the top end given we have fewer entrepreneurs, and less significant at the “bottom” end of wealth because it’s harder to obtain a margin loan. But people certainly do it with real estate.
• 30
  The political problem is that if someone owns a £1m portfolio that they bought for, say, £100,000 20 years ago, capital gains on death would be £252k and inheritance tax would be £400k – an overall effective tax rate of 65%. That is actually a rational result, because that’s what the rate would have been if they’d sold their house before dying. But politically I suspect the fear of an upfront high rate means this is a non-starter.
• 31
  With the inheritance tax liability then slightly lower to reflect the fact that the asset being inherited is pregnant with CGT. Alternatively the inheritance tax liability could be unchanged, but the CGT base cost adjusted to “credit” the IHT paid on the gain – a messier result.
• 32
  The exception is the Swiss wealth tax – but that is charged at a low rate on most people, not just the very wealthy, and so has little in common with the campaigners’ proposals. Switzerland has no capital gains tax or inheritance tax, and income tax on dividends is easily avoided. So the Swiss wealth tax in practice operates as a kind of minimum tax on wealth – but even with that tax, many Swiss cantons tax wealth much less than the UK (which is why so many very wealthy people move there).
• 33
  I am sceptical this is consistent with ECHR caselaw and I doubt a UK court would take the same approach, although I am sure it would consider the Dutch Supreme Court’s reasoning carefully.
• 34
  This was added thanks to a comment on X.
• 35
  I confess I find this depressing. The problems with an FTT are not obscure; they’re well known amongst economists and tax policy specialists. The question isn’t whether you agree or disagree with the tax, it’s whether it’s workable – and I’m not aware of anyone with expertise who thinks it is. NGOs like Oxfam wasted many £m of their donors’ money on a hopeless and counterproductive cause. And columnists who should have known better hailed the politics without thinking about the actual impact.
• 36
  The French, Italian and Spanish taxes were called “financial transaction taxes” to catch the wave of popularity of such taxes at the time. They are, however, essentially more limited versions of UK stamp duty reserve tax, and nothing like actual FTTs.
• 37
  This one wasn’t in the original list, but was picked up in a comment below – for which, thank you.
• 38
  Which I made myself until looking into the figures properly
• 39
  Annuities can be purchased in the market, but none have anything like the “triple lock”, so precisely pricing such a product is hard. A number of people with expertise kindly commented when I asked about this on social media, with estimates ranging from £250,000 to £400,000.
• 40
  An important caveat is that whilst this figure fairly reflects the commercial cost of such a pension, it doesn’t reflect the cost to the Government of providing it. In part because the Government has access to much cheaper funding than any commercial provider; in part because government will usually collect tax from the pension that it is paying (perhaps income tax on the pension itself; definitely VAT on purchases).
• 41
  Some people thought that a pension can’t be valued in this way, because the government could stop paying it at any time. That’s true in principle, but it’s also true in principle that a commercial annuity could stop paying, e.g. because the insurer goes bust. That is probably more likely than government suddenly ceasing to pay existing pensions.