Published by Global Banking & Finance Review®
Posted on September 19, 2025
5 min readLast updated: January 21, 2026
Add as preferred source on GoogleEuropean governments are exploring tax strategies for the wealthy, focusing on capital gains and inheritance taxes as alternatives to direct wealth levies.
By Francesco Canepa
FRANKFURT (Reuters) -Cash-strapped European governments looking to tax the rich harder to plug holes in public finances and redress rising inequality may find that direct wealth levies are not the most effective solution.
History shows outright wealth taxes rarely generate much revenue and often miss their main targets, tax experts and economists say. They point to a menu of options that work better, including greater scrutiny of capital gains, inheritance taxes and exit fees for those trying to switch to a tax haven.
"Concerns about wealth inequality do not imply that governments should use net wealth taxes," the IMF said in a recent guide to governments. "Improving capital income taxes tends to be both more equitable and more efficient."
MODEST REVENUES
In Europe, Switzerland, Spain and Norway have varying forms of a wealth tax on holders of assets above a certain level, and France and Britain are debating the idea to reduce their budget deficits.
The average top income tax rate across the 38 countries in the Organisation for Economic Co-operation and Development fell from 66% in 1980 to 43% currently.
And at the very pinnacle of society, the top 0.0001% of earners can pay hardly any taxes at all in countries such as France and the Netherlands because they can park their assets in holding companies, according to research by Paris School of Economics professor Gabriel Zucman.
He was behind a proposal for a 2% wealth tax on France's richest 0.01% in the 2026 budget, now being debated by politicians.
"We need to ensure that billionaires pay at least as much as other social groups," Zucman told Reuters. "It is a basic question of justice and respect for the fundamental principles of tax fairness."
But taxing a person's stock of assets isn't the only or perhaps even the best way to get there.
These taxes typically generate modest revenues of just a few decimal points of gross domestic product. This is because taxpayers, particularly the ultra-rich, can easily shield their assets by placing them in businesses or trusts, in exempted or hard-to-value items such as antiques, or even siphon them off to tax havens.
CAPITAL GETS BETTER DEAL
In addition, a wealth tax is generally levied on all types of wealth at the same rate - effectively penalising those who own lower-yielding assets.
By contrast, a tax on the income derived from capital - such as dividends and capital gains, which are profits made when an asset is sold - is levied on actual returns.
As these are generally subject to lower tax than labour income, proponents of taxes on the wealthy see room for change.
"The favourable tax treatment of gains is a significant driver of low effective tax rates among high-net-worth individuals," the OECD said in a report published earlier this year.
Income from capital gains and dividends is taxed at a low, flat rate in countries including France, Germany, Italy, South Korea and Japan.
Some economists argue low taxes on capital encourage savings, investment and entrepreneurship, although OECD research shows those aims could be achieved in other ways, such as targeted relief.
Fixes include removing exemptions for capital gains, such as on some real estate, and making sure these are taxed, at the latest, when assets are inherited or a taxpayer leaves the country, especially for a tax haven, according to OECD and IMF research.
DEATH TAX MAY GIVE ECONOMY NEW LIFE
Inheritance tax, sometimes disparagingly called a "death tax", is both fair and efficient, according to the OECD.
Its researchers argue it has advantages over a wealth tax, such as not discouraging people from saving for their old age or, if the right exemptions are in place, from making a nest for their children.
Detractors say inherited assets have already been taxed when income was earned. They point to the fact that the top 1% of earners are already the biggest contributor to the state's coffers in most major countries.
While most developed economies do tax inherited wealth, not all make full use of that tool.
Most do not tax unrealised capital gains, and provide generous allowances for business assets.
In Italy, Poland and, up to a threshold, South Korea, heirs don't pay any levy on a business they inherit. In Ireland, Spain and Germany there are very high exemptions.
In a competitive global environment, policymakers need to strike a balance in raising tax revenue without sending the wealthy to other jurisdictions, tax experts say. Yet tax activist group the Tax Justice Network argues everyone would benefit from a narrower wealth gap.
"One of the things that undermines social outcomes for everybody, including the wealthiest, is inequality... High inequalities undermine economic growth. They undermine life expectancy across the board," said the Tax Justice Network's Chief Executive Alex Cobham.
(Additional reporting by Leigh Thomas in Madrid, Toby Sterling in Amsterdam, Giselda Vagnoni in Rome, Leftheris Papadimas in Athens, Charlie Devereux in Madrid and Simon Johnson in Stockholm; Editing by Susan Fenton)
Wealth taxes typically generate modest revenues and can be easily avoided by the ultra-rich through asset shielding. This makes them less effective in addressing wealth inequality.
Experts suggest focusing on improving capital income taxes, which are based on actual returns rather than a flat wealth tax. This includes taxing capital gains and dividends more effectively.
Inheritance tax is viewed as fair and efficient, with advantages such as not discouraging savings. However, critics argue that inherited assets have already been taxed during the original income generation.
The average top income tax rate across OECD countries has decreased from 66% in 1980 to 43% currently, indicating a shift in tax policy over the decades.
The OECD highlights that the favorable tax treatment of capital gains is a significant factor in low effective tax rates for high-net-worth individuals, suggesting a need for reform.
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