Wealth Taxes V: International Experience (Case Studies)

Wealth Taxes V: International Experience (Case Studies)

Charles Collocott | Apr 05, 2018
This is the fifth brief of a seven part series and is the second of two that deal with the international experience with wealth taxes.

The first brief of the series provided a conceptual framework, the second dealt with the rationales for a wealth tax, the third discusses the problems, the sixth deals with land tax, and the seventh discusses lessons for South Africa.


This brief provides a short summary of the experience of four countries with wealth taxes: The United Kingdom, France, Sweden and India.

The United Kingdom

In 1974 the Labour Government came to power in the UK committed to introducing an annual wealth tax. It left office without doing so. The following section is a brief description of the events.

1974-79 saw significant change in the UK’s political and economic climate. In ’76 the Labour government required the IMF to halt a run on the pound. Unsustainable inflation was linked to public spending unmatched by revenue and social spending that had taken place since 1945 ran unchecked. Trade union power peaked in 1974 with the capacity to shape economic policy, rendering the strategy of provoking a recession to check wage inflation unacceptable. To win trade union trade union agreement to wage constraint the Labour party agreed, before elections, to measures that would ‘fundamentally redistribute income and wealth’. This included an annual tax on wealth.

The main basis of Labour’s tax policy until 1979 were taken from a book by Nicholas Kaldor, published in 1955 on behalf of the Royal Commission to review tax policy. Kaldor argued that for tax to be fair it must take account of the taxpayer’s capacity to pay (a rational for wealth tax discussed in Brief 2). Thus in 1974 Labour included wealth tax in the Party Manifesto. The idea however attracted critics not just from Conservatives but also from those who were sympathetic to some kind of redistribution of wealth. The critics argued that administrative costs and the difficulty of measuring an individual’s wealth made it impractical. The Labour Party did not take up these ideas.

A major wealth tax brief was written and awaited the incoming Labour Chancellor Denis Healey in ’74. The brief gave broad outlines, concluding that such a tax was feasible and that government should move quickly to implement it to limit capital flight and avoidance.

Up to now there was little Treasury input, but from April 1974 Treasury began to look more carefully at the practical problems and potential wider economic impact. Opposition from external interest began to emerge. Owners of country houses and the museums and the art world prompted a rethink of the treatment of such property as ‘national treasures’. Other matters that worried Treasury were the weakness of the economy, rising inflation and the threat to the pound.

In July 1974 it was decided that the Green Paper on tax that contained within it wealth taxes be debated by a Select Committee of the House of Commons. Once the debate reached the Select Committee the government began to lose the initiative. The Conservative members opposed, obstructed and delayed and Labour failed to put together convincing replies. Ultimately this resulted in the Chancellor proposing to the Prime Minister that the legislation for a wealth tax be postponed until 1977. The postponement was agreed.

Over the next year the cuts in public spending and the IMF loan took over Treasury’s concerns. While there was some concern around how the unions might react should the wealth tax be abandoned, it was the concern on the markets’ reaction to wealth taxes that triumphed. In June 1976 the idea of wealth taxes was abandoned. [1]

Labour Chancellor Denis Healy’s own reflection was that the idea of a wealth tax was a mistake:

‘’Another lesson was that you should never commit yourself in Opposition to new taxes unless you have a very good idea how they will operate. We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” (Healey 1989, p404)


Wealth tax has been prominent in French politics for over 30 years. In 1982 President François Mitterand introduced the Impôt sur les grandes fortunes (IGF), a progressive wealth tax topping out at 1.5% on assets above 10 million francs. When Mitterand’s party lost control of parliament, the new government, headed by Jacques Chirac, repealed the law in 1987. That decision was considered partly responsible for Mitterand’s re-election. In 1989, Mitterand brought back the tax in modified form of the Impôt sur la solidarité fortune (ISF). The ISF had more bands but a lower top rate, going up to 1.1% on assets above 20 million francs. [2]

In October 2017, French Parliament under Emmanuel Macron adopted a package of measures for 2018 that included scrapping the wealth taxes on everything except property assets. For the sake of this series of briefs however we will continue to look at the ISF in its 2017 form.

Due to the high wealth tax threshold and a large range of exemptions and deductions, the French wealth tax has a narrow base compared to other such systems. The ‘fiscal household’ applies the same threshold to couples (married or not) as singles. Cumulative income and wealth taxes are capped at a proportion of income. The purpose of the cap is to address concerns about ability to pay for high wealth – low income households. [4] Assets held by children below the age of 18 must also be included in the calculation.

The National Audit Office for Tax Situations (DNVSF) within the tax administration handles the tax matters of high net worth individual (HNWI) taxpayers subject to wealth taxes. The DNVSF comprises 13 audit teams, task forces (Brigades de Vérifications), and one planning team (Brigade de Programmation). The planning team gathers information on (potential) taxpayers to be audited and determines which one will be subject to a tax audit. [3]

As discussed in the third brief of this series, the ISF has had unintended consequences. A 2008 study titled The Economic Consequences of the French Wealth Tax, by Professor Eric Pichet of Kedge Business School, found that France loses around 5 billion Euros in tax revenue a year because of people leaving to avoid the wealth tax. Pichet goes further to say this capital flight could cost at least 0.2% of annual GDP due to a decrease in investments.

Since 2000, France has experienced a net outflow of around 60 000 millionaires. Vincent Lazimi, a partner at law firm Vaslin Associés, says “There has been an acceleration of departures from France due to the unstable nature of the policy (wealth tax).” [6]

Lastly, it is debatable whether the yield from France’s wealth taxes has been significant. In 2016 it brought in around €5bn, which less than 2 percent of total tax revenue or 0.2 percent of GDP. [7]


Swedish wealth taxation was introduced in 1911 and abolished in 2007.

Wealth taxation levied against owners of family firms and individual wealth was introduced in Sweden in 1911 by the 1910 Ordinance of Income and Wealth Taxation. The 1910 reform conferred an important role to the ability-to-pay principle. A second motive was to compensate for the erosion of other tax bases and growing government financing needs. Likewise, several types of wealth tax were introduced during and between the World Wars in order to fund the military. Finally, beginning in the early 1930s the wealth tax was motivated as a means of redistribution.

From 1911 to 1919 the wealth tax was a marginal tax on the combined income and wealth tax motivated by the notion that current income from wealth could be taxed more heavily than labor income. The marginal rate varied between 1.7 and 6 percent.

From 1920 to 1938 combined income and wealth tax schedules were revised and made flexible. The structure of the new state tax system – tax brackets, base amounts and marginal tax rates – was fixed, but the effective total tax rates were now flexible. Politicians determined rates annually, thus allowing for easy upward and downward adjustments in the state income and wealth tax rates in accordance with perceived “needs”. These marginal tax rates varied from 0.5 to 8 percent.

A separate wealth tax was introduced in 1934, alongside the income and wealth tax. It applied until 2007. The income and wealth tax was abandoned in 1947 for two reasons: (i) to attain greater simplicity, and (ii) an increasing awareness of its disincentive effects when marginal tax rates were becoming much higher. The separate wealth tax levied rates of between 0.1 and 0.5 percent on different brackets directly on net wealth. The introduction of the separate wealth tax in 1934 also entailed an upper limit rule prohibiting levying wealth taxes on asset values exceeding 25 times taxable income. A tax floor was also implemented, stipulating that the wealth tax must never be reduced below the tax due on half of taxable wealth.

Despite the long period of enactment in Sweden, wealth taxes were never particularly important as a source of revenue for the government. Aggregate wealth tax revenues never exceeded 0.4 percent of GDP in the postwar period and amounted to 0.16 percent of GDP in 2006. [8] Wealth taxes were finally abolished in 2007 due to the low revenue as well as high admin costs, difficulties with asset valuation, [9] capital flight and inconsistencies in the treatment of private wealth and operating assets which lead to inefficient and inequitable outcomes. [10]


Indian wealth taxation was introduced in 1957 and abolished in 2016.

Wealth taxes in India were levied at one percent of net wealth above a certain threshold (Rs 30m being the latest, equivalent to US$ 460 000) and applied to individuals, Hindu undivided families (HUF) and companies. Eligibility was further determined on the basis of nationality and residence status. [11] Assets included in the calculation of wealth taxes were buildings, cars, jewelry, urban land, cash above Rs 50 000, yachts boats and aircraft. [12]

In 2015 the Indian finance minister Arun Jaitely told attendees at an event hosted by Columbia University in New York that “The practical experience [of wealth taxes] has been it’s a high cost and a low yield tax”. Jaitely argued that wealthy consistently undervalue assets that would have been eligible for the wealth tax. The tax only produced roughly 10.1 billion rupees worth of revenue or 0.07% of GDP in the 2014-15 period. In an attempt to simply the tax system, the Indian government replaced the wealth tax with a 2% surcharge on incomes above Rs 10m rupees in 2016. [13] 

Charles Collocott


[1] Glennerster 2012, p1 -12

[2] Chibber 2014

[3] Wealth Under The Spotlight, Ernst and Young 2015

[4] Lawless and Lynch 2016


[6] https://www.ft.com/content/19feb16a-1aaf-11e7-a266-12672483791a

[7] Chassany 2017

[8] Rietz and Henrekson 2017

[9] OECD, 2014

[10] Chatalova and Evans 2013, pg 445

[11] Singh 2013

[12] http://www.ey.com/in/en/newsroom/news-releases/ey-more-compliance-requirements-for-wealth-tax-payers

[13] Phillips 2015