Wealth taxation in Scotland: a literature review

1. Wealth, wealth taxation, and the Scottish context

This chapter defines wealth and wealth taxation, examines the distribution of wealth and levels of wealth inequality in Scotland, and reviews how wealth is currently taxed within the Scottish and UK tax systems. Where relevant taxes are reserved to the UK Government, these are discussed to provide a complete picture of how wealth is taxed in Scotland in practice. The chapter also considers the limitations of existing data and administrative systems for valuing wealth required for implementation of a wealth tax, and outlines areas where current tax arrangements could be reformed to tax wealth more effectively, even in the absence of a formal wealth tax.

Throughout this report, we adopt a broad definition of wealth taxation, encompassing taxes on both stocks of wealth and streams of income derived from wealth. We define wealth as the accumulation of financial resources built up through saved income, transfers, and gains from holding assets. Taxes on consumption funded through wealth holdings are beyond the scope of this report and are therefore excluded from the analysis.

What is wealth?

The main measure of wealth in Scotland comes from the ONS’ Wealth and Assets Survey of Great Britain (WAS). This survey provides the most comprehensive available measure of wealth holdings and is widely used to assess levels of wealth and wealth inequality. The WAS defines personal wealth as the net value of four components: financial wealth, physical wealth, property wealth, and pension wealth (Office for National Statistics, 2025).

Financial wealth is measured as the value of savings or investments minus financial liabilities. Financial assets include bank and savings accounts, investments, stocks and shares, and other financial products. Liabilities include overdrafts, loans, credit card debt, and arrears on household bills. Both formal financial arrangements and informal assets, such as cash held within households or borrowing from family or friends, are included.

Physical wealth captures the value of physical goods owned by households, including vehicles, valuables, collectables, and household contents. Any borrowing used to finance these assets is included within financial liabilities rather than deducted from physical wealth directly.

Property wealth^[1] is calculated as the value of all property owned minus any outstanding mortgage debt or equity release. This includes main residences, second homes, buy-to-let properties, holiday homes, timeshares, land (as in land value taxation), and other real estate held in the UK or abroad, excluding property associated with business ownership.

Pension wealth is the value of occupational and personal pensions held in private (non-state) pension schemes. This captures both defined contribution and defined benefit entitlements to date. For defined contribution pensions, this is the current accrued value of contributions paid into pension pots. For defined benefit pensions, pension wealth is estimated as the present value of future pension income already accrued, calculated by projecting expected pension payments and discounting them to today’s value. These estimates are based on the pension rights accumulated to date and exclude any pension rights which may be built up in future.

Wealth is accumulated by building up assets across these categories and through increases in their net value over time. There are several ways in which wealth can be accumulated:

• Actively earned income – income from employment or self-employment, including earnings or dividends from a business owned by the individual
• Passive income – dividends, interest, or rental income earned from investment holdings or savings^[2]
• Gains from holdings – increases in the value of assets such as property or financial investments
• Transfers of wealth – assets received as gifts or inheritances, often from family or friends

These different channels of wealth accumulation are treated differently within the tax system and are relevant when considering how wealth is measured and taxed in Scotland.

What is a wealth tax?

The Wealth Tax Commission defines a wealth tax as “a broad-based tax on the ownership of net wealth” (Advani, Chamberlain and Summers, 2020). Net wealth is measured as an individual’s total assets minus their debts. Under this definition, a wealth tax would typically apply across most asset types rather than targeting a narrow subset of wealth.

The Commission distinguishes between two broad forms of wealth taxation: one-off wealth taxes and annual wealth taxes. A one-off wealth tax is where individuals would only be taxed once, based on the value of the wealth they owned at a particular date. An annual wealth tax, by contrast, would require regular valuations of wealth and would constitute a permanent addition to the Scottish, and potentially UK, tax system. Wealth taxes differ fundamentally from income taxes. Income tax is levied on new earnings, such as wages, dividends, or interest, whereas a wealth tax is levied on the total net value of assets owned, regardless of whether those assets generate income. This includes assets such as property, financial investments, and earnings that are saved.^[3]

Income tax applies broadly to individuals earning above the personal allowance threshold and typically involves relatively low rates applied to a wide base. A wealth tax, depending on its design, would likely apply only to individuals or households with very high levels of wealth, meaning a narrower tax base and higher average liabilities for those affected. As a result, wealth tax revenues are generally more sensitive to behavioural responses, such as changes in asset holdings or migration, than income tax revenues.

Valuation also presents a key distinction. Income taxes are based on observable transactions, whereas wealth taxes require valuation of asset holdings, which can be complex, particularly for illiquid or hard-to-value assets. Liquidity constraints further differentiate wealth taxes from income taxes, as income taxes are paid from regular cash flows, often taxed at the source, while wealth taxes may be levied on assets that do not generate sufficient liquid income to meet tax liabilities.

Why would Scotland want a wealth tax?

There has been increasing public and political debate in recent years about the introduction of a wealth tax in the UK. A range of organisations, such as Tax Justice UK, the Wealth Tax Commission and Patriotic Millionaires UK, have argued in favour of wealth taxation, citing concerns about wealth inequality and the perceived under-taxation of large wealth holdings. Political support has also emerged across several parties, such as the Green Party and Plaid Cymru. Public opinion polling suggests a high level of support for wealth taxes. A YouGov poll from July 2025 found 75% supported (either 'strongly' or 'somewhat') the introduction of a wealth tax of 2% on wealth above £10 million (YouGov, 2024).

A fundamental objective of a wealth tax is revenue generation. In principle, such a tax may be viewed as a progressive way of raising revenue by targeting individuals with the greatest ability to pay. Depending on its design, a wealth tax could be implemented on a one-off basis - for example, to address exceptional fiscal pressures - or levied on a recurring (e.g. annual) basis as a permanent feature of the tax system. As discussed in Chapter 2 and summarised in Tables 1 and 2, the revenues generated by wealth taxes vary considerably across countries. Nevertheless, the Swiss experience demonstrates that, under certain conditions, such taxes can raise substantial and stable revenues.

Another central argument in favour of a wealth tax is the scale of wealth inequality, which is substantially greater than income inequality. This pattern is evident in Scotland as well as across the UK. Data from the Wealth and Assets Survey suggest the concentration of wealth among a small proportion of households (The National Records of Scotland, 2025).

The latest available data for Scotland (2020–2022) show that the top 2% of households by income received around 10% of total income, while the wealthiest 2% of households held approximately 15% of total wealth. At the other end of the distribution, the least wealthy 40% of households held just 5% of total wealth in Scotland.

In addition, the average household in the wealthiest 10% held around £1.3 million in total wealth, compared with just £7,600 for the average household in the least wealthy 10%. Lower-wealth households are also less likely to own property or hold private pension wealth, with their limited wealth primarily comprising physical possessions.

There are other methods for measuring wealth inequality, such as the Gini coefficient. This ranges from 0 to 1, where 0 means all households have the same wealth, and 1 means one household has all the wealth and all other households have none. From 2020 to 2022, Scotland had a Gini coefficient of total wealth of 0.59. Comparisons across countries are not always easy due to data and definitions, and can fluctuate widely. But for context, the US wealth Gini coefficient has been estimated at between 0.74 (UBS, 2025)^[4] and 0.83 (Kuhn, 2025).^[5] The UBS report estimated France’s coefficient at 0.59, around the level of Scotland, while Belgium (0.47) and Slovakia (0.38) registered the lowest values for European countries.

Age is a major determinant of wealth accumulation, as individuals nearing retirement typically have had more time to save and invest than younger adults. However, other factors such as employment status, educational attainment, and marital status also play significant roles in determining wealth holdings.

The Wealth Tax Commission’s distinction between one-off and recurring net wealth taxes (at UK level) was based on their purpose. A one-off levy could raise significant revenues and be harder to avoid, but would also need a compelling reason to be implemented. This would increase the credibility of it being a genuine one-off, otherwise, the risk is that agents will behave on the expectation that this might be repeated. A recurring wealth tax, on the other hand, would be less likely to achieve as large a level of revenues, although it might be justified in addition to reforming other forms of wealth taxation on the basis of specific wealth redistribution aims – even if achieving that may not be easy.

Considerations and limitations of the wealth data

Implementing a wealth tax would require reliable valuations of individual wealth to establish the tax base and calculate liabilities. At present, the Wealth and Assets Survey is the only comprehensive source of data on wealth levels in Scotland, but it has significant limitations that constrain its usefulness as a potential method for wealth valuation.

Firstly, the survey relies on self-reported data collected through interviews. While self-reporting is also used for some forms of income taxation, valuing wealth is inherently more complex than reporting income transactions. Respondents may struggle to estimate the current value of assets, particularly those that are illiquid, have appreciated or depreciated significantly over time, or are rarely traded.

There is also evidence that certain types of wealth may be systematically misreported. For example, physical wealth may be overestimated if respondents focus on original purchase prices rather than current replacement values (Francis-Devine, 2025). Alternatively, assets that have appreciated substantially may be undervalued. Assets such as private business interests, property, or artwork are particularly difficult to value accurately through self-assessment.

Sampling issues present a further challenge. Wealthier households are less likely to respond to surveys, meaning the very top of the wealth distribution is often underrepresented in survey data (Francis-Devine, 2025). This makes estimates for the wealthiest households volatile and unreliable, which would be particularly problematic if a wealth tax were designed to target only the top percentile of wealth holders. In Scotland, the survey sample also excludes the Scottish islands and postcodes north of the Caledonian Canal, meaning any wealthy landowners or individuals residing in these areas are not represented in the sample.

Concerns about data quality have been exacerbated by the impact of the COVID-19 pandemic, which further reduced survey sample sizes. In June 2025, the Office for National Statistics requested that the Office for Statistics Regulation suspend the accreditation of the ONS’ core outputs using the Wealth and Assets Survey from Round 8, covering the period 2020 to 2022 onwards, while further work is undertaken to improve quality. The suspension indicates that the data no longer fully comply with the Code of Practice for Statistics criteria for accredited official statistics and should be interpreted with caution (Office for Statistics Regulation, 2025). Alternative third-party valuation methods could address some of these issues but come with their own limitations. These approaches are often costly, time-consuming, and typically capture only identifiable wealth. For example, the Sunday Times Rich List^[6] compiles an estimate of the minimum wealth holdings of Britain’s 350 richest people or families. These estimates focus on visible assets like land, property, or major shareholdings but exclude bank deposits and smaller or less transparent investments. Where wealth is held through family trusts, valuations may be aggregated at the family level rather than reflecting individual ownership, which may be complicated if a wealth tax is levied on individual wealth holdings.

In addition to valuation concerns, there are several other potential challenges associated with implementing a wealth tax in Scotland. These issues are discussed in more detail in Chapter [3].

Where is wealth already taxed in Scotland?

Although Scotland does not operate a formal wealth tax, many components of wealth holdings are already subject to taxation through a range of UK and Scottish taxes.

Taxes on estates

Inheritance tax (IHT) is levied on the net value of an individual’s estate at death and is administered by the UK Government. The net estate is calculated as the total value of assets minus outstanding debts and includes property, financial assets, foreign assets, and personal possessions. Estates are taxed at 40% on values above £325,000. A higher threshold of up to £500,000 may apply in certain circumstances where a main residence is passed to direct descendants, or where the estate is worth less than £2 million (Seely, Masala and Keep, 2024). From April 2027, unused private pension pots will be included in estate valuations for IHT purposes (HM Revenue & Customs, 2025).

Lifetime gifts may also fall within IHT where they are made within seven years prior to death, subject to exemptions and allowances. Gifts are generally exempt if made to a legal spouse or civil partner living permanently in the UK, or if they fall within the annual gift allowance of £3,000 per tax year (which can be carried forward for a maximum of one year if unused). There are additional tax-free allowances for gifts made in connection with a wedding or civil partnership, worth up to £5,000 depending on the recipient’s relationship to the donor. Regular payments made out of surplus monthly income are not treated as gifts for IHT purposes and are typically tax-free. Where gifts are chargeable, tax rates taper with time since the gift was made: for example, gifts made three years before death can be taxed at 32%, falling each year to 8% for gifts made six years before death (GOV.UK, 2012).

Reliefs are available for certain business and agricultural assets, reducing the value subject to IHT. Business relief of 100% or 50% can apply to qualifying business assets owned by the deceased for at least two years, including shares in unlisted companies and certain business property such as land, buildings, or machinery used in a business the deceased owned (GOV.UK, 2014). Agricultural relief of 100% can apply to qualifying agricultural property used to grow crops or rear animals on a working farm in the UK (HM Revenue & Customs, 2024). The UK Government announced that from, April 2026, the 100% business and agricultural reliefs would be capped at £1 million, with 50% relief applying to relevant assets above £1 million (Seely, Masala and Keep, 2025). This planned cap was increased to £2.5 million at the end of 2025 and is due to take effect from April 2026 (Whannel, Roberts and Pike, 2025).

Taxes on properties

Property in Scotland is taxed in a number of ways.

Council tax is levied on the occupier of a residential property. For rental properties, this means the tax is usually paid by the tenant. Rates are set by local authorities and are based on valuation bands linked to what the property was (or would have been) worth in April 1991. Council tax is often described as a regressive tax because tax liabilities are lower as a proportion of property value for higher-value properties. However, exemptions and discounts – such as those for single occupancy, low income, disability, or student status – reduce liabilities for some households and partially mitigate regressivity (Adam, Phillips and Ray-Chaudhuri, 2025). Council tax reduction amounted to 17.5% of all chargeable dwellings in 2024-25.

From April 2024, Scottish local authorities were permitted to charge double council tax on second homes – properties not used as primary residence but that are occupied for at least 25 days in a year – and this has since been adopted by all local authorities in Scotland (The Scottish Government, 2024a). In March 2026, the Scottish Parliament agreed regulations to remove the previous cap and allow councils greater flexibility to determine charges for second and long-term empty homes from 1 April 2026. In the 2026-27 budget, the Scottish Government announced the introduction of two new higher council tax bands from April 2028 for properties valued at over £1 million, based on up-to-date valuations. This aims at addressing some of the regressive nature of council taxes by revaluing and increasing the tax levied on the most high-value residential properties across Scotland (The Scottish Government, 2026).

Land and Buildings Transaction Tax (LBTT) is levied on the purchase of property or land in Scotland over a certain value. Rates are set by the Scottish Government and vary across property purchase with different rates for residential properties, additional properties or non-residential properties. For residential property, tax begins at 2% above £145,000 (or £175,000 for first-time buyers) and increases through bands: £145,001–£250,000 = 2%, £250,001–£325,000 = 5%, £325,001–£750,000 = 10%, and above £750,000 = 12%. For additional properties (such as a second home, rental, or holiday home), an Additional Dwelling Supplement (ADS) is charged on top of LBTT and is currently 8% of the purchase price. For non-residential property, LBTT is 1% on £150,001–£250,000 and 5% above £250,000 (The Scottish Government, 2026b).

Non-domestic rates (NDR), or business rates, are a property-based tax, and apply to all non-domestic property in the private, public and charitable sectors in Scotland. Rates are set by the Scottish Government, and for 2026/27 the rates are 48.1p per £1 of rateable value (basic), 53.5p (intermediate), and 54.8p (higher). Rateable value is set by assessors (typically on a three-year cycle) to reflect the open-market value of the property. A range of reliefs may reduce liabilities for eligible businesses (The Scottish Government, 2020).

Taxes on profits from assets

Capital gains tax (CGT) is charged on the profit from selling certain assets that have increased in value. CGT applies to the monetary gain from the increase in value, not the full value of the asset. Tax is due on gains above the capital gains tax-free allowance of £3,000 for individuals, or £1,500 for trusts. CGT is administered by the UK Government, which sets rates, thresholds, and which asset classes are exempt or chargeable.

CGT rates for Scottish taxpayers depend on which UK income tax band the individual would fall into under the UK income tax system. Scottish taxpayers who would be UK basic-rate taxpayers pay 18% on gains from residential property and other chargeable assets, and 32% on carried interest (for investment fund managers). Scottish taxpayers who would be UK higher- or additional-rate taxpayers pay 24% on gains from residential property and other chargeable assets, and 32% on carried interest.

Assets liable to capital gains tax are known as ‘chargeable assets’. These include personal possessions worth more than £6,000 (excluding cars); property that is not a main residence; a main home where it has been let out, used for business purposes, or where the land exceeds 5,000 square metres; business assets; and shares not held within an ISA or a personal equity plan. CGTs also apply when inherited assets are later sold, including cases where inheritance tax may already have been paid on the estate; however, the gain is considered from the value of the asset when it was inherited, not from the original purchase price.

Special rules apply to non-UK residents. Individuals living overseas are liable for CGT on gains made on UK property and land. CGT may also apply to gains on other UK assets if the individual returns to the UK as a resident within five years of leaving, or where shares are sold in a company whose gross asset value is 75% or more UK land.

Losses can be used to reduce taxable gains. Losses from asset sales are first offset against gains made in the same tax year. If gains remain above the annual exempt amount, unused losses from previous years can be deducted. If losses reduce gains to the exempt amount, any remaining losses can be carried forward to future tax years (GOV.UK, 2012a).