In this week's blog, we take a deeper look at some of the different scenarios that could occur should we see the announcement of the much-debated Wealth Tax in this year's Autumn budget. With a possible 2% tax on assets held over £ 10 million being mooted, supporters are quick to champion the potential for an £ 11 billion a year windfall into the UK's coffers. Still, with naysayers touting Norway as the perfect example of where this strategy has historically been tried, tested, and scared a lot of good businesses off to Switzerland, we pose the question that if this does happen, what may happen, and could there be any positives for unlocking idle land for smaller property developers?
A recent YouGov poll found 75% of the electorate polled were in favour of a Wealth Tax, which would be far more in line with a traditional Labour policy. It's attractive as any tax one doesn't have to pay is appealing, and it just seems fair; we have a system suffering from a disproportionate positioning of assets and wealth. However, the practicalities of these kinds of policies differ significantly from the whitepapers, with Norway being the example often cited. The Norwegian lived experience of this was that 80 of the Wealthiest people left the country, taking their businesses with them. A 100-million tax raid became a 500-million deficit, and it's something the country is still dealing with today. The slight difference here, though, is that the exodus came from two main areas: banks, which left for a favourable tax setup in Switzerland, and technology businesses that had incredibly high valuations, but it was all unrealised gains; ergo, it made no sense to stay. Whereas in the UK, it could be something else.
When you look out of the window of the plane as you're taking off on your holidays this summer, what do you notice? Most people, certainly those living in our cities, think the same thing: that's a lot of green fields down there. 70% of our land, or 35 million hectares, is held by the wealthiest 1%, and is largely idle or left in an underutilised form. If you exclude the aristocracy and the gentry, as we certainly don't want to lean too far into socialist rhetoric here, 18% of it is being land banked by big business, 17% of it is owned by bankers & oligarchs, and the remaining 17% is undeclared but owned by people within the top one percent financial demographic. To cut to the chase, there is an estimated 200 billion of land owned, to profit from its shortage.
One of the most tangible benefits of a wealth tax targeting assets over £10 million is its potential to incentivise the more productive use of land banks and high-value real estate holdings. For land that isn’t generating income (e.g., idle brownfield sites or stalled developments), the owners may be forced to either develop the land to generate income (through rent or sales proceeds) or sell it to a more active developer who can unlock its value. This mechanism could result in more land entering the market, easing a critical bottleneck in UK housing delivery.
We say could, as much like this blog, this is a confusing situation, unlike liquid financial assets, property development requires tying up capital for long periods before returns are realised. Developers often carry land and partially completed projects on their balance sheets for 12 to 36 months, sometimes longer. A wealth tax applied annually, based on net asset value, could put considerable strain on cash flows, particularly for SMEs with lumpy revenue cycles, smaller developers who are, by and large, high-leverage developers who appear wealthy on paper but hold little liquidity, and operators in high-cost regions where land prices inflate balance sheets. If project timelines are delayed or sales are slower than expected, meeting these obligations could divert funds from hiring, land acquisition, or even lead to asset sales under pressure.
If a UK wealth tax were introduced, policymakers would need to design safeguards and exemptions to avoid undermining the work everyone is doing across the housing sector. This would perhaps involve exemptions for development land held with valid planning permission for active development, deferral mechanisms for illiquid asset holders, maybe targeting interest payments as revenue raisers over forced sales, and a huge issue in of itself, there would need to be some sort of specialised enforcement via HMRC to discourage avoidance through shell companies, the sorts of avoidance and strategy that has created the imbalance in the system we are currently burdened with.
So, like many of these issues, there are no clear answers here; we can only speculate on what may happen, but a 2% annual wealth tax on assets over £10 million could reshape the UK housing development sector, potentially increasing land availability, boosting funding for affordable homes, and discouraging speculative holding of prime property, should the risks be adequately mitigated. We began this piece with a title quip comparison to socialist wealth redistribution, which is obviously not what this is, but the real toil going on here is the honest work of businesses struggling within the system. These are the businesses our sector will continue to support as they build the nation's houses, regardless of which path the economy takes.
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