Wealth taxation in Scotland: a literature review

3. A wealth tax for Scotland?

The preceding chapters have examined how wealth is defined and taxed in Scotland and how net wealth taxes operate in international practice. Chapter 2, in particular, demonstrated that the effectiveness and durability of wealth taxes depend not only on headline rates, but on the broader institutional environment in which they are embedded - including administrative capacity, tax-base composition, and interaction with other forms of capital taxation.

However, significant institutional differences between Scotland and the countries examined limit the extent to which international experience can be directly applied. Scotland operates within a devolved framework and remains integrated into the wider UK tax system, with key elements of capital taxation reserved to the UK Government. As a result, this chapter does not seek to determine whether a wealth tax would ‘work’ in Scotland in the abstract. Rather, it applies the insights from the international evidence to the Scottish context, assessing the institutional, behavioural and fiscal conditions under which a wealth tax could operate effectively within Scotland’s devolved settlement.

Institutional background

Firstly, we must examine the constraints imposed by the devolution settlement. The Scottish Parliament has controlling power over income tax rates and bands on non-savings, non-dividend income, property transaction taxes and local taxation. However, most taxes on capital - including inheritance tax, capital gains tax and dividend taxation - remain at the discretion of the UK Parliament. National Insurance Contributions, which apply to earned income rather than capital, are also reserved.

The Scotland Act 1998 provides a mechanism through which the Scottish Parliament may introduce new taxes, but this typically requires UK Government approval unless structured as a devolved local tax.

Some have suggested a wealth tax could be introduced at a ‘local’ level within the existing devolved framework. It is unclear, however, how local authorities could introduce an effective tax that could grant them access to the information necessary to administer such a tax – especially without any framework legislation operating at the national level. However, should the government wish to impose any form of national wealth tax across Scotland, this would likely require coordination with, and, indeed, approval from, the UK Government.

These limits are significant for several reasons, all of which are linked to the lack of fiscal autonomy that sovereign states possess. First, Scotland cannot independently redesign the broader capital tax framework within which a wealth tax would operate, despite evidence that the interaction between wealth taxes and other forms of capital taxation materially affects behavioural responses and effective tax burdens. Second, administration and enforcement would either have to rely heavily on existing HMRC infrastructure or need a separate Scottish system to be established – presumably within Revenue Scotland, but entailing a substantial increase in its capacity – which would come at the substantial cost and capacity requirements of the kind identified by the OECD (2018), Rehr (2020) and Neidle (2025). Third, Scotland does not control migration policy, residence rules or exit taxation, limiting its ability to calibrate a wealth tax in ways that manage mobility incentives and cross-border behavioural responses.

The Scottish tax base

The feasibility of a wealth tax depends critically on the size, concentration and composition of the tax base. Chapter 1 highlighted that wealth in Scotland is highly concentrated, with the top deciles holding a substantial share of total wealth. However, measurement challenges are significant, with the Wealth and Assets Survey underrepresenting the very top of the wealth distribution and relying on self-reported valuations, making precise estimates of extremely high-wealth households inherently uncertain.

The composition of wealth is also important. Where wealth is primarily held in illiquid assets such as housing or private business equity, liquidity constraints and valuation challenges become more significant. By contrast, where wealth is concentrated in easily observable financial assets, third-party reporting can reduce opportunities for under-reporting and help protect the integrity of the taxable base.

International evidence suggests that behavioural responses depend partly on the demographic and mobility profile of high-wealth households. As noted in Chapter 2, the UK’s wealthiest individuals are more internationally diverse than those in a country like Norway, where wealth is largely domestically generated. While reliable data on the demographic composition of Scotland’s highest-wealth households is limited, Scotland remains embedded in the UK’s economic and fiscal framework. As such, migration between Scotland and the rest of the UK faces minimal legal or administrative barriers. On the assumption that liability for a Scottish wealth tax would be aligned with the definition of a Scottish taxpayer under the Scotland Act 1998, the criteria for falling outside that definition are not particularly onerous relative to the potentially very large liabilities that would come with a wealth tax. Differences in income tax liabilities between Scotland and the rest of the UK may therefore create incentives for individuals to change their tax residence, which is broadly consistent with findings from HM Revenue & Customs (2018), who find some evidence of reduced net migration to Scotland among higher earners following the introduction of income tax differentials.

This implies that behavioural responses may differ from those observed in more nationally self-contained tax bases, and as noted above, Scotland lacks the power, absent coordination with the UK Government, to adjust the wider fiscal framework to shape this response.

Behavioural risks in the UK fiscal framework

Empirical evidence suggests that taxable wealth is responsive to changes in net-of-tax rates. Estimates for the UK, carried out by Advani and Tarrant (2021), indicate that a 1% annual wealth tax could reduce reported taxable wealth by between 7% and 17% over time, reflecting avoidance, portfolio reallocation and mobility responses. Some Scottish proposals (discussed later in the chapter) have contemplated rates of 2%, implying potentially larger elasticities.

Migration and internal mobility

In a smaller sub-sovereign economy, responsiveness may be further amplified by the relative ease of relocation within an integrated economic area. These dynamics are particularly salient in the Scottish context.

Migration between Scotland and other UK regions involves no change in currency, language, or national citizenship. There is no internal border or exit tax. If a wealth tax applied only in Scotland, high-wealth individuals could potentially relocate within the UK while retaining substantial economic ties. This form of internal mobility may present a more material behavioural margin than international migration observed in some European cases.

This scenario assumes that a Scottish wealth tax were introduced in the absence of a comparable UK-wide levy and without any accompanying mechanism to limit migration responses. By contrast, if a wealth tax were introduced at the UK level, or if multiple UK regions were granted autonomy to levy their own wealth taxes, the dynamics would differ. In that case, the situation might more closely resemble the decentralised systems observed in Spain or Switzerland, where inter-regional differences in rates and design generate tax competition rather than placing disproportionate mobility pressure on a single devolved area – although note that this tax competition still places restrictions on how much revenue can be raised.

Foreign investment and capital allocation

Similarly, if a wealth tax existed only in Scotland and applied to foreign residents, this could reduce the relative attractiveness of investing in Scotland compared to other UK regions. Conversely, exempting non-residents could create incentives for Scottish residents to transfer assets to entities or individuals located elsewhere in the UK, or to change their tax residence, in order to fall outside the scope of the tax, thereby eroding the domestic tax base.

Although empirical evidence on the impact of wealth taxes on foreign investment remains limited, the stylised example discussed by Neidle (2025) illustrates how an annual wealth tax can reduce the effective present value of an investment and thereby alter relative after-tax returns. Even in the absence of strong empirical estimates, this mechanism is relevant in the Scottish context, given Scotland’s integration within the UK economy and the possibility that differences between Scottish and UK-wide tax treatment could influence the allocation of capital.

This is of significant importance because capital allocation and capital intensity are key drivers of long-term economic growth. All else equal, a country will find it beneficial to increase the amount of capital per worker, which is associated with higher productivity and higher incomes. A policy that reduces the attractiveness of Scotland to capital investment risks putting Scotland’s economy on a permanently lower path of capital intensity, especially in a competitive international landscape.

Portfolio shifting and avoidance

In attempts to limit effective rates and impacts on growth, or to navigate valuation complications, exemptions for various types of assets are frequently introduced. Research has shown that such design features can lead to portfolio reallocation, where taxpayers shift wealth into exempt asset classes, narrowing the tax base and, therefore, revenues. On the other hand, a broad-based tax may be perceived as being less fair and as increasing burdens on entrepreneurship or illiquid wealth.

The absence of full Scottish control over inheritance tax and capital gains tax further complicates these interactions. Taxpayers may adjust portfolios across asset classes depending on relative treatment at the UK and Scottish levels.

These portfolio adjustments and shifts on the part of taxpayers are not only perfectly legitimate if they exist, but also rational. The effect of a policy which taxes some assets more highly than others is to artificially alter the relative rates of return of asset classes. But while a government might want to incentivise or disincentivise investment in particular asset classes, many of the international examples of these exemptions focus on the difficulty of valuation or avoiding politically damaging taxes on particular assets. For example, Spain exempts privately held company holdings, which are much harder to value than publicly traded ones. But research also shows that privately held companies tend to have much more concentrated ownership, and therefore the returns on the growth of those companies is likely to be much less well distributed across society, and a consequence of a policy like this could be to further concentrate company ownership by reducing the incentive for companies to go public.

Interaction with the existing UK tax system and the Fiscal Framework

Unlike Switzerland, where wealth tax substitutes for relatively light capital gains and inheritance taxation, Scotland would be layering a wealth tax on top of existing UK-wide capital taxes, including inheritance, capital gains and dividend taxes.

Incorporating a wealth tax into the current structure would increase marginal effective tax rates on capital. As shown in Chapter 2, in some countries, combined effective rates have exceeded 100% in real returns. While caps or liability limits can mitigate this, they also complicate administration and create additional incentives for planning avoidance.

The OECD’s conclusion that wealth taxes are strongest where other capital taxes are weak is therefore directly relevant. Even if capital gains taxes are lower than income tax rates and inheritance tax has significant exemptions, Scotland does not operate in an environment with very low capital taxes. The UK already levies taxes on capital through instruments such as capital gains tax, inheritance tax and dividend taxation, meaning that, in comparative terms, it is not a low-tax environment for capital, particularly relative to countries such as Switzerland, where the taxation of capital gains is more limited. Any Scottish wealth tax would need to be assessed in light of its cumulative interaction with UK-level taxation.

As mentioned earlier, implementing a wealth tax in Scotland would likely require coordination with, and, indeed, approval from, the UK Government. This means not only the actual legal introduction of the tax, but also what consequences – if any – might come from it in the fiscal framework. This would of course depend on whether the UK Government were planning to introduce a wealth tax. In that case, it seems clear that a Scottish version of a wealth tax would likely lead to a block grant adjustment, the mechanism of which would have to be decided through negotiation. Whether the UK Government would insist on a change to the block grant even in the absence of an equivalent tax in the rest of the UK is entirely speculative, but cannot be ruled out. This would have consequences for how much a wealth tax in Scotland might increase the Scottish Government’s spending power.

One unanswered question about a local wealth tax – putting aside all the difficulties in implementing it – is what would happen to the revenues. Local tax revenues must be spent locally, so the only way this would raise revenue for the Scottish Government would be to have an equivalent cut in the grants to local government, but this is not stated clearly in any proposals.

Administrative capacity

Implementing a wealth tax requires reliable valuation and enforcement systems. The Wealth and Assets Survey cannot function as an adequate administrative register. Non-verifiable, self-reported disclosures could leave Scotland open to underreporting and the revenue and efficiency consequences this entails. To more effectively monitor and administer a wealth tax, a tax authority would require comprehensive asset disclosure, third-party reporting for financial assets, standardised property valuations and clearly defined rules and practices for private business valuation and areas of dispute.

As it stands, if Scotland were to introduce a national net wealth tax, it would likely have to rely on HMRC systems unless it were to significantly boost the capacity and legislative remit of Revenue Scotland, given the number and complexity of assets requiring valuation. In any case, it would have to overcome the significant strain on capacity, as noted by Rehr (2020).

Whether the model of administration and collection of a wealth tax would be clearly a matter for the legislators. Nonetheless, it is worth noting that the taxes for which Revenue Scotland is responsible for collection are self-assessed, related to observable transactions and generally less complex than some of those collected by HMRC. The latter’s remit includes taxes such as corporation tax, which is complex and often requires specialists on matters such as transfer pricing, and which is more similar to the level of work that might be required to value illiquid and rarely transacted assets for the purposes of a wealth tax.

Were Revenue Scotland to be chosen as the administrating agency, this would require an initial increase in its funding and capacity to conduct the necessary valuation and audit work. But there is an important question regarding rights to information access where assets are held outside of Scotland that might make enforcement more difficult if Revenue Scotland is the collection agency. It is worth noting that the Scottish Government uses HMRC to collect Scottish Income Tax – itself a much more straightforward tax than a net wealth tax would be. This is another administration model that would be available to the Scottish Government should it decide to pursue a wealth tax.

The level of complexity involved in calculating and verifying the liabilities of a tax of this kind and the level of information access required seems infeasible to be operated by each of Scotland’s local authorities separately. Furthermore, international experience suggests that disputes over asset valuation can give rise to litigation, increasing both administrative costs and uncertainty. While Switzerland has limited appeals through the use of harmonised and transparent administrative guidelines, other jurisdictions have faced prolonged legal challenges over valuation methods and constitutional issues. The scale of this potential administrative burden relative to expected revenue is therefore a central feasibility consideration.

It is worth noting that valuation appeals are already common in Scotland for non-domestic rates, which is a tax related to property and market rental values, and therefore easier to value than many of the assets that would need to be valued under a wealth tax. The larger the liability is, the higher the incentive to launch a challenge – given that these would be large sums for many taxpayers, the number of appeals expected would be higher than for most other taxes.

Existing Scottish wealth tax proposals

While the preceding analysis has focused on structural feasibility rather than specific campaign proposals, it is useful to consider how recent Scottish proposals relate to the findings of this review.

A number of Scottish political parties and civil society organisations have advanced proposals for a net wealth tax in recent times. These proposals typically frame wealth taxation as a mechanism to address inequality and raise revenue for public services, often emphasising that only a very small proportion of households would be affected.

The Scottish National Party (SNP) has signalled a willingness to explore the introduction of an annual wealth tax. At the 2025 SNP Conference, delegates endorsed further exploration of a “local wealth tax”, terminology that may reflect an attempt to navigate the constraints of the current devolution settlement (Chartered Institute of Taxation, 2025b). Speaking at the conference, Chris Stephens stated that a 2% annual levy on assets above £10 million - described as “modest” - could raise approximately £500 million to support public services (Chartered Institute of Taxation, 2025b).

The Scottish Trades Union Congress (STUC) modelled a 2% annual wealth tax on families with net wealth above £5 million, estimating that this could raise approximately £1.4 billion per year (Scottish Trades Union Congress, 2024). They indicate that the proposal could be implemented within Scotland’s devolved powers, provided it is structured as part of the local tax system rather than as a new Scotland-wide national tax. In addition to these aggregate projections, the STUC also offer an illustrative example, stating that a 2% levy on Scotland’s ten wealthiest families alone could raise £459 million - framed as sufficient to fund 10,000 public sector workers. While such examples are rhetorically powerful, they underscore the degree to which projected revenues are concentrated among a very small number of high-wealth households.

Meanwhile, the Scottish Green Party has advocated for a “millionaires’ tax”, positioning it as part of their broader proposals for progressive tax reforms. They propose a 1% annual tax on wealth above £1 million, stating that it would apply only to the wealthiest 10% of households (Scottish Greens, n.d.). As with the SNP and the STUC, they also indicate a preference for pursuing implementation through local tax powers should a Scotland-wide or UK-wide wealth tax prove unachievable under the current constitutional framework.

When assessed against the findings of this review, these proposals prompt several considerations. First, it is unclear the extent to which the revenue projections cited have accounted for the elasticity of taxable wealth or, if so, the assumptions underpinning those estimates. Empirical evidence for the UK, outlined in Chapter 2, suggests that even a 1% annual wealth tax could reduce reported taxable wealth by between 7% and 17% over time. Proposals advocating a 2% rate therefore operate in a range where behavioural responses may be materially larger, particularly given Scotland’s lack of control over migration rules or exit taxation. Moreover, as Neidle (2025) highlights, taxes that rely heavily on a very small number of ultra-high-wealth individuals may generate volatile and fragile revenue streams. Where projected yields depend disproportionately on the continued residence and compliance of a handful of taxpayers, even limited migration or restructuring responses can have drastic fiscal effects. This concentration risk is especially relevant in a small, open and internally mobile economic space such as Scotland within the UK.

Second, the characterisation of a 2% annual levy as “modest” warrants contextual examination. As outlined in Tables 1 and 2, most existing or historical European net wealth taxes have operated at rates between 0.1% and 1.5%, with many clustered around 1%. Switzerland’s cantonal wealth taxes often fall below 1%; Norway’s national rate is approximately 1% (with a surtax above higher thresholds); Spain’s top statutory rates are higher but apply with a system featuring caps and generous exemptions. A flat 2% annual tax would, therefore, sit at the upper end of international experience. When considered over the lifetime of a long-term investment, a permanent 2% annual levy is economically equivalent to a significant reduction in the asset’s present value. Describing such a rate as “modest” may therefore understate its position relative to historical and contemporary international wealth taxes, and may risk underestimating the scale of behavioural responses and avoidance incentives it could generate.

Third, the proposals outlined focus primarily on the headline revenue potential rather than on the interaction with the existing UK capital tax framework. As discussed earlier in this chapter, Scotland would be layering a wealth tax on top of inheritance tax, capital gains tax and dividend taxation, rather than substituting for them. International evidence suggests that the coherence and sustainability of wealth taxes depend heavily on this wider fiscal setup.

This is not to suggest that a Scottish wealth tax is unworkable in principle. Rather, it underscores that headline revenue projections and distributional aims must be evaluated alongside institutional constraints, behavioural elasticities, administrative capacity, and cumulative effective tax burdens. The recurring reference to “local” implementation reflects the uncertainty surrounding the constitutional and administrative route through which such a tax could be introduced.

The ultimate impact of a Scottish wealth tax would depend critically on its institutional setting - including whether it were imposed at national or local level, whether a comparable UK-wide tax were introduced, how migration incentives were addressed, and whether design features such as effective rate caps were incorporated. Given these contingencies, precise revenue and behavioural predictions are inherently highly uncertain. What is clear, however, is that either coordination within the wider UK fiscal framework or carefully designed mitigating measures would be necessary to ensure that any proposed wealth tax is not only legally feasible, but also resilient to the distinctive economic and institutional challenges arising from Scotland’s position within the UK.

Lessons for Scotland

The preceding analysis suggests that the question is not simply whether Scotland could introduce a wealth tax, but under which conditions such a tax would be institutionally coherent, administratively workable and fiscally sustainable. The severe drop in wealth taxes across the OECD in recent years highlights that this is a complex issue to solve, yet international experience demonstrates that wealth taxes are neither inherently unworkable nor inherently successful. Their durability depends on careful embedding within the wider fiscal system, credible enforcement mechanisms and realistic assumptions about behavioural responses.

In the Scottish context, any credible proposal would need to move beyond headline rates and revenue aspirations to address a series of foundational design complications. These include: the constitutional route for implementation; the precise definition of the tax base and treatment of debts; thresholds and rate structure; treatment of different asset classes; interaction with inheritance tax and capital gains tax; treatment of non-residents and outbound mobility; valuation methodology and third-party reporting requirements; administrative costs and enforcement capacity; and behavioural revenue adjustments grounded in empirical elasticity estimates. Without clarity on these elements of the tax design, revenue projections risk materially overstating achievable and sustainable yields.

Scotland’s institutional position differs materially from that of countries currently operating wealth taxes. Unlike Switzerland or Norway, Scotland does not exercise full control over capital taxation, migration policy or exit taxation. Unlike Spain, where regional variation occurs within a sovereign national framework, Scotland operates within a highly integrated UK fiscal and economic space. Any wealth tax would therefore be layered onto an existing structure of UK-wide capital taxation, rather than substituting for weaker capital taxes. As the OECD (2018) notes, wealth taxes tend to be more coherent where they compensate for gaps in capital taxation rather than supplementing an already substantial effective burden. In addition, Scotland must account for the relative ease with which high-wealth residents can relocate within the UK, where movement involves no change in currency, citizenship or internal border controls. This internal mobility may represent a more immediate behavioural margin than migration observed in some European cases. The feasibility and impact of a Scottish wealth tax would therefore depend not only on its own design, but also on whether a comparable UK-wide wealth tax were introduced, and on the extent of coordination with the UK Government regarding tax autonomy, enforcement and the broader capital tax framework.

This review only identifies the principal conditions under which such a policy might operate effectively. International evidence does not preclude the introduction of a wealth tax in Scotland in principle. The Swiss experience demonstrates that, under supportive institutional and fiscal conditions, a wealth tax can constitute a stable and significant component of a national tax system. However, replicating such conditions in Scotland would require careful navigation of constitutional constraints, administrative capacity, behavioural responsiveness and interaction with existing UK-wide taxes. A credible proposal must therefore be evaluated not in isolation, but within the realities of Scotland’s embedded position in the UK’s fiscal architecture. Only once these institutional and practical considerations are clearly defined can meaningful judgments be made about revenue potential, distributional impact and long-term sustainability.