Wealth Tax in Europe: Who Pays and Where?
Understand how European wealth taxes are structured, from the assets included in net worth calculations to the distinct obligations for residents and non-residents.
A net wealth tax is an annual levy on an individual’s total net worth. This figure is determined by calculating a person’s total assets and then subtracting their total liabilities or debts. This form of taxation is distinct from an income tax on earnings, a capital gains tax on the profit realized from the sale of an asset, or a property tax, which is a narrower tax focused solely on the value of real estate and not the comprehensive total of an individual’s assets.
European Countries with an Active Wealth Tax
Across Europe, the application of a broad-based net wealth tax is now confined to a small number of nations, each with its own specific framework. The most prominent examples are Spain, Norway, and Switzerland. The Netherlands and Belgium have implemented taxes that target specific components of wealth, representing a more limited approach.
Spain
Spain’s wealth tax, the Impuesto sobre el Patrimonio, is a progressive tax applied to an individual’s net assets. The national framework sets a general tax-free allowance of €700,000, with progressive rates from 0.2% to 3.5% on wealth exceeding that threshold. Spanish residents also benefit from an additional exemption of up to €300,000 for their primary residence.
Autonomous regions can modify these rules, and in response to some regions offering 100% relief, the central government introduced a “Solidarity Tax on Large Fortunes” in 2022. For residents, the tax applies to their worldwide assets, while non-residents are only taxed on assets located within Spain. The tax base includes real estate, bank deposits, investments, and vehicles.
Norway
Norway has a long-standing history of wealth taxation, with its current system, the Formuesskatt, applied at both the municipal and national levels. The tax is levied on an individual’s net wealth exceeding a threshold of NOK 1.76 million. For wealth above this amount, a combined rate of 1.0% is applied, and for net worth exceeding NOK 20.7 million, the top rate increases to 1.1%.
The tax base includes worldwide assets for residents, but valuation rules provide for significant discounts on certain assets. A primary residence, for example, is assessed at only 25% of its market value for the first NOK 10 million and 70% for any value above that.
Switzerland
In Switzerland, the net wealth tax, or Vermögenssteuer, is levied at the cantonal and municipal levels, but not by the federal government. This results in significant variation in tax rates and allowances across the 26 cantons. Swiss residents are taxed on their worldwide assets, with the notable exceptions of real estate and business assets located outside of Switzerland.
Tax-free allowances for a single person can range from approximately CHF 30,000 to CHF 125,000, depending on the canton. The tax rates are generally progressive and modest, with combined cantonal and municipal rates typically falling between 0.1% and 1.0%. The tax base includes assets like real estate, bank accounts, and securities, while personal debts are deductible.
Other Limited Wealth-Related Taxes
The Netherlands and Belgium have taxes that, while not full net wealth taxes, target significant components of wealth. The Dutch system, known as the “Box 3” tax, is part of its income tax structure. It taxes a deemed, or fictional, return on an individual’s net assets (savings and investments minus debts) above a tax-free threshold of €57,700. The primary residence is excluded from Box 3.
Belgium imposes a “tax on securities accounts” (taxe sur les comptes-titres). This is an annual tax of 0.15% levied on securities accounts with an average value exceeding €1 million. The tax applies to a broad range of financial instruments held in these accounts. It is levied per account, and the liability falls on the account holder, whether they are a Belgian resident or a non-resident holding an account with a Belgian financial institution.
Countries That Have Repealed Wealth Taxes
The landscape of wealth taxation in Europe has shifted significantly over the past few decades, with a clear trend of countries moving away from broad-based annual levies on net worth. At the beginning of the 1990s, over a dozen European nations had a wealth tax in place. Today, that number has dwindled as prominent economies have repealed their systems, citing a range of administrative and economic factors.
France maintained a well-known wealth tax, the Impôt de Solidarité sur la Fortune (ISF), for many years. In 2018, the French government repealed the ISF and replaced it with a much narrower levy, the Impôt sur la Fortune Immobilière (IFI). This new tax focuses exclusively on an individual’s real estate assets, exempting all other forms of wealth such as financial investments, jewelry, and other movable property. The IFI applies to households with net real estate assets valued above €1.3 million.
Sweden also had a national wealth tax, which it ultimately abolished in 2007. The repeal was part of a broader tax reform, and at the time, concerns were raised that the tax was encouraging wealthy individuals and capital to leave the country. Since the repeal, Sweden has not had a comparable annual tax on net worth.
Germany’s experience with a wealth tax ended in 1997. The country’s Federal Constitutional Court declared the tax unconstitutional, not because of the concept of a wealth tax itself, but due to its implementation. The court found that the inconsistent valuation methods, particularly the preferential treatment of real estate compared to other assets like bank deposits, violated the principle of equality under the law. Germany has not reintroduced a wealth tax since this ruling.