Wealth taxation in Scotland: a literature review

Executive summary

This literature review, commissioned by the Scottish Government and conducted independently by Ipsos and the Fraser of Allander Institute at the University of Strathclyde, examines the landscape of wealth taxation in Scotland and the feasibility, implications and design considerations of introducing a net wealth tax in Scotland. It defines wealth and wealth taxation, reviews how wealth is currently taxed within the UK and Scottish systems, analyses international experience with net wealth taxes and assesses how these insights apply within Scotland’s devolved institutional framework.

Key findings

1. Wealth is already taxed in Scotland, but in a fragmented way

Scotland does not operate a formal wealth tax, but wealth is taxed through a range of instruments, including inheritance tax, capital gains tax, property taxes, and dividend taxes. All these taxes are levied on particular forms or proceeds of wealth, even if no tax levied on the value of assets held exists. There are options to reform existing taxes (particularly council tax) to improve the taxation of wealth without introducing a new tax.

2. International evidence shows mixed outcomes

Wealth taxes have been widely used historically, but have been abolished in most OECD countries, often due to administrative complexity, behavioural responses, and limited revenues. Net wealth taxes now exist in only three OECD countries (Spain, Norway and Switzerland), and these taxes differ in design. The Swiss model, which raises the highest revenues with respect to GDP of any European wealth tax, past or present, operates within a broader system of low capital taxation, where the wealth tax acts partly as a substitute for other taxes.

3. Implementing a wealth tax poses significant practical challenges

A wealth tax requires accurate and comprehensive valuation of assets, which is difficult, particularly for illiquid or hard-to-value assets. Existing data sources, such as the Wealth and Assets Survey, are not suitable for administrative purposes due to underreporting and limited coverage of the wealthiest households. Establishing a robust system would require significant administrative capacity, potentially involving new systems or a major expansion of existing HMRC or Revenue Scotland systems, and would be highly complex. While valuations of hard-to-value assets are carried out for specific purposes, the administrative complexity would be much greater if it were to be applied on a consistent basis across the whole tax base.

4. Behavioural responses are a central concern

Evidence suggests that taxable wealth is highly responsive to taxation, with estimates indicating that a 1% wealth tax could reduce reported taxable wealth by 7-17% over time. Behavioural responses include migration (particularly within integrated economic areas), portfolio reallocation, and avoidance and underreporting. These responses can significantly reduce the effective tax base and revenues, and are likely to have particularly large effects on net revenues given the small number of potential taxpayers and the large liability that each might face.

5. Scotland’s institutional context creates additional challenges

Scotland operates within the UK’s devolution framework, where key taxes on capital remain reserved to the UK Government. A Scottish wealth tax would therefore be layered on top of existing UK taxes, potentially increasing overall marginal effective tax rates.

Unlike sovereign states, Scotland cannot adjust the wider capital tax system, control migration policy or implement exit taxes. High net worth individuals can move relatively easily within the UK, creating strong internal mobility risks. Any wealth tax would require significant coordination with the UK Government, which would have to agree to its implementation. While there are calls for wealth taxes to be implemented at a local level, the lack of power for local government to access the relevant information and the administrative complexity to value assets render this option impractical.

The difference between Scotland’s institutional context and that of the countries currently operating net wealth taxes limits the external validity of the findings in this study.

6. Revenue projections are highly uncertain

Some proposals suggest substantial revenues from a wealth tax, but these estimates are sensitive to behavioural responses, the concentration of wealth among a small number of individuals and the administrative feasibility of the tax’s implementation. Revenues are likely to be volatile and dependent on a small number of taxpayers, increasing revenue risks significantly. At the time of writing, no formal proposal has clearly defined the intended tax base, or detailed plans for rolling the tax out nationally or sub-nationally.

Overall assessment

International evidence shows that wealth taxes are neither inherently unworkable, nor guaranteed to succeed. Their effectiveness depends heavily on tax design, administrative capacity, behavioural responses (and the extent to which these are mitigated by the design), and critically, the wider fiscal system in which they operate.

In Scotland, these conditions differ materially from those in countries where wealth taxes have persisted. The combination of limited fiscal autonomy, integration within the UK, and existing capital taxation creates a more complex environment for implementation.

Implications for policy

A Scottish wealth tax would need to be carefully designed to account for: behavioural responses and mobility; interactions with UK-wide taxes (including whether the UK was to impose its own wealth tax); and administrative feasibility and valuation challenges.

Reform of existing taxes on wealth may offer a more practical route to improving the taxation of wealth in Scotland. Any credible proposal for a net wealth tax must be assessed within the realities of Scotland’s constitutional and fiscal position, rather than in isolation. Close engagement and coordination with the UK Government would be essential in developing any proposal, not least because of legal implications, interactions with the wider fiscal architecture and the need to access the relevant information to administer such a tax.