Wealth Tax

What is a Wealth Tax?

A wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary.

How Does a Wealth Tax Work?

Wealth taxes work by applying a tax rate to an individual’s net wealth, usually above a certain threshold. A person with $2.5 million in wealth and $500,000 in debt would have net wealth of $2 million. If a wealth tax applies to all wealth above $1 million, then under a 5 percent wealth tax the individual would owe $50,000 in taxes.

If the individual’s wealth is not growing at a rate higher than the tax rate, the wealth tax will ultimately reduce that individual’s wealth. This means that individuals with lower rates of return on their wealth will face higher effective tax rates.

Wealth Tax on Different Rates of Returns

Source: Author’s calculations.

  Pretax return Annual wealth tax rate Equivalent Income Tax Rate Return after Wealth Tax
Scenario A 2% 5% 250% -3%
Scenario B 5% 5% 100% 0%
Scenario C 10% 5% 50% 5%

What Countries Impose Wealth Taxes?

Comprehensive wealth taxes have never been implemented in the United States; however, several other countries around the world have implemented wealth taxes. Many wealth taxes among developed countries have been repealed in recent years.

Among OECD countries, there are just six countries that currently impose wealth taxes. Even among these six countries there is variety in the way the countries define the tax rate and base.

OECD countries with revenues from net wealth taxes on individuals, wealth tax warren, wealth taxes in europe, european wealth tax

Current OECD Countries with a Net Wealth Tax

Source: EY, Worldwide Estate and Inheritance Tax Guide

Country Rate Base

Belgium

0.15 percent

Average value of securities holdings if the value is greater than €500,000 ($543,000) per account holder.

Italy

0.2 percent for financial assets, 0.76 percent for real estate properties

Financial assets and real estate properties held abroad by Italian taxpayers.

Netherlands

0.58 percent to 1.68 percent (effective)

Net wealth excluding primary residence and substantial interests in companies. Part of the income tax.

Norway

0.7 percent at the municipality level and 0.15 percent at the national level

Fair market value of assets minus debt. Tax applies to value of wealth above NOK1.5 million ($171,100).

Spain

0.2 percent to 2.5 percent depending on the region

May differ depending on the region, but generally value of assets minus value of liabilities.

Switzerland

Varies depending on the Canton

Gross assets minus debts.

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