The costs of administering a wealth tax

I assess the costs of administering a wealth tax for taxpayers and the tax authority in the UK context, based on evidence from existing UK taxes on wealth and comprehensive wealth taxes that have been imposed in other countries. My central estimate is that a well-designed wealth tax generates costs to taxpayers of 0.1 per cent of taxable wealth and costs to the tax authority of 0.05 per cent of taxable wealth. I discuss how these costs depend on design choices. My ﬁndings can inform revenue modelling and help to evaluate the desirability of wealth taxes.

countries that currently impose a wealth tax or have done so in the past. 2 It should be emphasised that these costs crucially depend on design choices.Motivated by this observation, throughout the paper, the presented evidence is linked to the corresponding policy features.
It is important to note that the costs of administering a wealth tax are incurred by both taxpayers and the tax authority.Thus, I examine costs for each of these groups.In practice, this boundary is not fixed.It would be possible to shift costs from the taxpayer to the tax authority (or vice versa) depending on the design of the administrative process.For example, valuations could be conducted by the tax authority or by another government agency, rather than commissioned privately by taxpayers.In such circumstances, the effect on the total costs of administering the tax will depend on which side can deliver the relevant administrative services most efficiently. 3n this paper, the costs to taxpayers are defined as the direct financial expenses incurred, such as professional advisory fees, and do not take into account the indirect costs of a taxpayer's own time spent on administration or an increase in the cost of personal financial planning.In relation to the tax authority, the analysis includes the costs of additional staff (payroll costs and overheads) on an operating basis, but it excludes any fixed costs of transitioning to and setting up new systems associated with the introduction of a new tax. 4he administrative costs can be represented in various ways.In the literature and official statistics, they are often expressed in percentage of tax revenue because this allows an intuitive interpretation and, from the government's perspective, it highlights what share of the intake is spent on collecting the tax and what share is available for other public expenditure.However, this representation is mechanically related to the associated tax rate because, all else equal, the administrative costs are largely independent from the rate being applied, but tax revenue varies significantly with the rate. 5s this paper aims to be informative for a range of wealth tax designs, including variation in the tax rate, the headline statistic generally used throughout the paper and in the conclusions represents the administrative costs as a percentage of taxable wealth. 6he main advantage of this representation is that it is independent from the wealth tax rate and can be interpreted as an implied additional rate (or surcharge).It has the disadvantage that it implicitly assumes that costs are proportional to the tax base.While the administrative costs may increase with individual taxable wealth as wealthier taxpayers have more complex financial circumstances, the fixed cost element of tax compliance and collection suggests that costs do not increase one-to-one with asset values. 7Thus, the paper relates the costs to the number of taxpayers subject to a wealth tax by additionally reporting costs per taxpayer where these data are available.Further, costs are usually also reported as a percentage of wealth tax revenue because this is the relevant metric from the perspective of the tax authority and policymakers as well as for comparisons between different types of taxes.
Given that the estimates for the administrative costs of a potential UK wealth tax are subject to considerable uncertainty, I report a central estimate as well as a lower and upper bound for both the costs to taxpayers and the tax authority.Note that these figures are 'best guesses' from triangulating the available evidence, rather than the result of a precise calculation.
The paper proceeds as follows.In Section 2, I examine the administrative costs of a wealth tax for taxpayers.In Section 3, I discuss the costs for the tax authority.I conclude in Section 4.

COSTS TO TAXPAYERS
This section focuses on the costs to taxpayers of administering a wealth tax.The compliance efforts of taxpayers involve activities such as disclosure, filing returns, obtaining valuations -a process that can be expensive for assets that do not have straightforward market values -as well as resolving disputes and litigation.A substantial share of these costs is incurred in the form of professional advisory fees for accounting, legal and valuation services -particularly for taxpayers that are at the top of the wealth distribution and have complex financial circumstances.Where ownership of a particular asset is divided between interests in companies, partners and trusts, the position can become even more complicated.Systematic evidence on the administrative burden on taxpayers is scarce.Section 2.1 sheds light on taxpayer costs by gathering and synthesising information from a selection of UK firms that have extensive experience in handling compliance activities related to existing taxes on wealth, such as the annual tax on enveloped dwellings (ATED) and inheritance tax (IHT).Section 2.2 draws on estimates from the literature for countries that currently impose or have imposed a wealth tax in the past.

Experience from UK taxes on wealth
The UK taxes most closely related to a wealth tax are ATED and IHT. 8 In the following, they are considered in turn.Each subsection first explains how the tax works and then discusses the administrative costs based on the information from the firms that were contacted and asked to comment on the efforts associated with tax compliance.Overall, the selected firms tend to be larger accountancy and law firms, with a specialism in advising high-net-worth individuals.Moreover, they tend to handle more complex affairs than average for a given level of wealth.This may mean that the reported costs are an upper bound for the overall population that might be subject to a wealth tax because taxpayers with moderate wealth primarily own assets (e.g.residential property, cars, pension accounts, listed shares, financial savings) that are more straightforward to value compared with other assets concentrated in the very wealthiest section such as private business.Wealthier taxpayers that are likely to be over-represented in these firms' experience tend to have more diverse portfolios and hold more private business wealth, which is particularly difficult to value.To shed light on how the share of asset holdings that are hard to value varies across the wealth distribution, Advani, Hughson and Tarrant (2021) classify assets into three categories based on how difficult their valuation is, following the taxonomy outlined by Pentelow (2020).Using data from the Wealth and Asset Survey (WAS), Advani  et al. show that below individual wealth of £5 million, 'the vast majority of assets by value (90 per cent or more) are in the "easy" or "mid" categories'.For individuals with wealth of £5-10 million, 34 per cent of their wealth is in assets that are hard to value.The corresponding share for individuals with wealth above £10 million is about 68 per cent.9 TA B L E 1 ATED chargeable amounts for 1 April 2020 to 31 March 2021

Property value Annual charge
More than £500,000 up to £1 million £3,700 More than £1 million up to £2 million £7,500 More than £2 million up to £5 million £25,200 More than £5 million up to £10 million £58,850 More than £10 million up to £20 million £118,050 More than £20 million £236,250 Note: Chargeable amounts depending on the property value under the ATED for the tax year 2020-21.Source: HMRC.

Annual tax on enveloped dwellings
Annual tax on enveloped dwellings (ATED) is a tax in force since 1 April 2013 and broadly levied on any company, wherever resident, that owns residential property over £500,000 in gross value, ignoring liabilities.10There is no ATED, mansion tax or further annual taxes on properties owned directly by trusts or individuals, other than council tax.The ATED is self-assessed separately from other taxes and an online return must be filed on or before 30 April each year.Even if a relief is available, a return must be filed and the relief claimed for each dwelling house owned by the company.The value in April 2012 -or at acquisition, if later -is taken.Revaluations occur every five years working one year in arrears.The tax is levied by reference to bands that are listed in Table 1.If individuals are not sure which value band their property falls into, they can ask HM Revenue and Customs (HMRC) for a 'pre-return banding check', provided that their property falls within 10 per cent of a banding threshold.
The reliefs most likely to apply to exempt a property from ATED arise if (a) the residential property owned by the company is rented to unconnected persons, (b) the property is part of property development or property trading, (c) the property is a farmhouse, or (d) the property is open to the public for a minimum 28 days each year.These reliefs mean that ATED affects a much narrower range of properties than the inheritance tax charge on enveloped properties introduced in 2017 (IHTA 1984 Schedule A1) where the only test is whether the property is residential; the fact that the property is let or trading stock, for example, is irrelevant for the purposes of the IHT charge.
I mainly consider three different costs: filing costs, valuation costs, and legal costs for solving disputes and litigation. 11The following paragraphs discuss these types of costs in turn based on the information from the surveyed firms.
First, professional advisory fees for filing an ATED return seem to generally range between £500 and £1,500. 12Several firms have declared that they charge a fixed cost of £1,000 for an ATED return without reliefs, irrespective of the value of the relevant property, because the reporting process does not depend on the property value in principle.The fixed fee reflects that there is a certain minimum amount of time that must be spent on completing the form and checking if the valuation is accurate.Smaller firms and trust administration providers may charge less than £500 in very straightforward cases, for example where the letting relief is obviously available.For other companies, compliance costs might exceed £1,500, particularly if the availability of a relief such as property development requires a more complex analysis. 13In short, costs can vary considerably, not only by reference to the firm but also depending on the peculiarities of the property.Under these circumstances, compliance costs increase with the number of properties the company holds but the relation may not be proportional.
In general, the costs of filing an ATED return are stated to be modest because the form is short and does not require a lot of information in comparison to IHT.14 A wealth tax will certainly require a longer form.Nevertheless, given that the ATED charge at the lowest band is only £3,700, filing costs can make up a significant share of total taxpayer costs for ATED; they become proportionately less for higher property values or where the company owns more properties. 15econd, valuation costs depend on the rigor of the assessment, the size and location of the property, and the professional firm involved.A value estimate or 'condensed valuation' for the purpose of filing an ATED return may cost taxpayers from as little as £250 to around £1,000, while expenses for a formal valuation report usually range between £1,500 and £3,000, depending on the property characteristics and contracted firm.Valuation costs can be much higher as well -up to about £10,000 -for properties that are large, of high value and/or situated in prime locations.As stated before, revaluations must be carried out every five years.
Despite the banding approach, filing an ATED return in practice generally still requires obtaining a valuation or at least a value estimate in virtually all cases.Thus, banding does not alleviate the burden of valuation altogether.However, its notched tax schedule does affect valuation costs.On the one hand, banding seems to lower costs in many cases because valuation can presumably be less precise or repeated less frequently if the dwelling is valued far from the thresholds, as the determination of tax due only depends on whether the property value is in the right band.This helps particularly to minimise valuation costs for the most expensive properties, where all that is needed is to know that they are definitely above the highest threshold and, thus, subject to the highest charge irrespective of their exact value.In the tax year 2018-19, about 150 ATED liable declarations were in the top band (2.4 per cent of the total number of 6,330 ATED liable declarations), generating £32 million in revenue (23.0 per cent of total ATED receipts of £139 million). 16For properties in lower bands, providing a professional valuation can also be avoided in rare cases if the property value is considered to sit safely within a band.On the other hand, banding may increase valuation efforts for dwellings valued close to a threshold because it provides very strong incentives for bunching just below the notch in the tax schedule.17This may induce some property owners to obtain additional or 'more accurate' valuations that place the assessed dwelling in the band below the threshold in question, resulting in higher valuation costs.Overall, the implications of banding for valuation costs depend on the density of taxpayers around the thresholds and the extent to which valuations can be manipulated.
Third, the costs of resolving disputes and litigation seem to be limited.According to the firms' experience, the band in which a property falls is rarely queried by HMRC as professional valuations are almost always obtained before filing ATED returns and HMRC can be asked for a pre-return banding check if in doubt. 18Enquiries into relief returns are also said by firms to be a relatively rare occurrence, although some noted that if a property was purchased by a company and then let, sometimes both stamp duty land tax (SDLT) and ATED enquiries were raised to check the letting was not to a connected person.Like IHT, ATED has its own separate rules on rights of appeal and enquiry.
Overall, the total compliance costs of ATED are reported to be rather low because: (a) the single asset in question -residential property -is regularly valued (i.e.there is an accepted methodology, a broad community of valuers, a lot of data available and usually a significant number of comparables); (b) formal valuations only need to be carried out every five years; (c) the digital filing of returns and relief declarations is easy to handle and does not take up a lot of time; and (d) chargeable amounts are determined by assigning properties into fairly wide bands.Although the contacted firms did not all agree that banding helps taxpayers to lower administrative costs, it is likely to reduce the burden of valuation and disputes compared with an ad valorem charge.Other advantages of banding for taxpayers are that compliance is straightforward and it is easier to budget tax costs.
To improve our understanding of the approximate magnitude of compliance costs for ATED and to explore how they depend on property values, we can add up filing and valuation costs and express them as a percentage of the tax due or the value of the charged asset. 19For illustrative purposes, take a property in the lowest band for which obtaining a valuation and filing a return is straightforward.Accordingly, assume that annual filing costs are around £500 and valuation costs that are incurred every five years are about £500 as well.Thus, the average annual compliance costs of ATED will be around £600, which represents 16 per cent of tax due or 0.06-0.12per cent of the asset value.Even if compliance costs increase with the property value, probably due to increased complexity, their importance shrinks relative to the charged amount and asset value.For instance, assume filing costs of £1,500 per year and valuation costs of £5,000 over five years for a property with a value of £5-10 million.Annual compliance costs will be £2,500, representing 4 per cent of tax due or 0.03-0.05per cent of the asset value.In the top band, compliance costs are likely to be particularly low because costs for valuation and dispute solving can be largely avoided.These back-of-the-envelope calculations suggest that the compliance costs for ATED can be substantial relative to the level of tax but are generally modest compared to the tax base.This discrepancy arises because the implicit tax rate charged by ATED is rather low.Moreover, the presented evidence implies that the costs as a percentage of the tax base are regressive, decreasing with the value of the taxed property.Further, it should be noted that ATED requires lots of taxpayers to file returns where no tax is payable because of a relief.For them, the compliance costs represent 100 per cent of the total expenses for the tax.
Comparing the features of ATED with a wealth tax, some important differences should be highlighted.First, a comprehensive wealth tax applies to all assets, not just a limited number of residential properties held in companies.The banding approach works well in the case of ATED because real estate is widely held and changes hands frequently, generating ample information on transactions available to the public.These features do not apply to some assets taxable under a wealth tax, such as chattels and private company shareholdings.Second, ATED applies to a single asset type whereas a wealth tax is based on multiple assets held by an individual.Hence, small uncertainties at the level of individual assets could aggregate to large uncertainty at the level of an individual's total wealth.Third, ATED on residential property in the UK is capped for properties of above £20 million and there are few properties within the top band.Total individual wealth has a much higher ceiling, which amplifies the magnitude of absolute errors in valuation even if relative errors remain small.Fourth, only a small subset of taxpayers who own property through a corporate structure is subject to the tax. 20These taxpayers tend to be familiar with professional assistance and the associated fees.It is to be expected that a wealth tax would apply to a much larger segment of the population, just because of the broader coverage of assets, although this also depends on the chosen exemption threshold.These distinctions cast doubt on whether the compliance regime of ATED, which seems to induce lower taxpayer costs relative to the tax base compared with other taxes analysed in this chapter, can be fully applied to a comprehensive wealth tax.Further, a wealth tax is generally levied on net wealth (i.e. the value of all assets net of debt), while ATED does not allow a deduction for debt.Although compliance costs would likely be similar in absolute terms if ATED was levied on net property values, the tax base would shrink, which would mechanically raise costs as a share of taxable wealth.It is notable, however, that ATED does apply to non-resident and UK resident companies irrespective of whether the individual shareholders are resident in the UK or not, and so provides some precedent for the possibility of enforcement in relation to taxes on real estate held by non-residents. 21

Inheritance tax
Inheritance tax (IHT) is a much more complicated tax in design, levied mostly on death but also on some gifts made in a person's lifetime where (a) the donor has died within seven (sometimes 14) years; or (b) the donor has made gifts into trust rather than outright; or (c) the donor has made gifts to a company or a closely controlled company has made gifts.Information on filing returns for IHT400 on death from the contacted firms suggests that there is large variation in the administrative burden across estates.Expenses depend strongly on the complexity of the estate, determined mainly by total value as well as diversity and type of assets held, lifetime gifts made, the relationship between family members and whether good records have been maintained during lifetime.Moreover, the multiplicity of reliefs that can be claimed both during lifetime and death and the allocation of the nil rate band can generate considerable complexity.Of these, the only points relevant to a wealth tax (assuming a simple design without reliefs) would be the total value as well as diversity and type of assets held.
Activities such as identification and valuation of assets and liabilities as well as the recording and then calculation of lifetime gifts contribute to the administrative costs to a very large extent.Disputes over wills are burdensome as well, but they occur less frequently in the experience of the contacted firms.Valuation is particularly costly if the deceased was a shareholder of a private company or if multiple valuations for properties need to be obtained.Fine art is another asset category that is cumbersome to value. 22Although costs of wealth tax valuation in the context of art could be greatly eased by giving a small exemption per item for household goods (as occurs in most other countries), this could still leave problems for higher-value fine art and similar items.One partial solution is to take the last acquisition value if the transaction has been carried out in the last five years.The costs of property valuation are of similar magnitude as the cost of valuations for ATED cited abovegenerally somewhere between £250 and £3,000 per property, depending on property characteristics, contracted firm, and thoroughness of the survey.Again, exceedingly valuable and complex properties can cost much more than that, up to around £10,000. 23Valuing private company shares is usually more expensive, with the costs depending on the contracted firm and the complexity of the valuation as well.Smaller firms may charge as little as £2,500 for very straightforward cases whereas complex valuations may well cost up to £25,000.Generally, this comprises valuing the entire firm and then assigning a value to the individual shareholder, including dealing with issues such as minority shareholding.In principle, the wealth tax could have an advantage over IHT in so far as the company only needs to be valued once.This produces the biggest portion of the valuation costs, and this value could be used for assessing the share value of all shareholders that are subject to the wealth tax. 24n addition to their regular costs, valuation of property, fine art and private company shareholding may occasionally lead to disputes between the tax authority and taxpayers or the firms representing 21 In Tysim Holdings Ltd v HMRC, FTT [2019] UKFTT 606, the company owned by a non-resident individual had made late payments of ATED for the years 2015-16, 2016-17 and 2017-18 on 20 December 2017.HMRC had imposed penalties against which Tysim Holdings Ltd appealed. Th company argued that it had not been aware of its obligations under ATED until November 2017 and that it had a reasonable excuse.The Tribunal rejected the appeal and considered that an investor holding an interest in real property in a foreign country was expected to take steps to ensure that they were aware of changes in the law of that country.22 See Tennant (2020).23 See Mackie (2020) for more information on valuing commercial and residential real estate.24 For more detailed information on the valuation of private company shares, see Nelder (2020).
them.Other reasons for disagreement include the level of discounts for minority shareholding, availability of reliefs and calculation of the tax, especially where there is grossing or double grossing up. 25 Each year, HMRC opens about 5,500 IHT investigations, equivalent to between one-fifth and one-quarter of the roughly 25,000 taxpaying estates that it annually deals with.26These disputes are generally resolved within 12 months from opening to closure.Some tax practitioners note that, in their experience, it usually takes between one and three years to settle these enquiries on a largish estate, depending on the complexity of the issue.As they deal with the most difficult cases, it should probably be no surprise that this timescale is longer than that of the average dispute.The costs of resolving disputes incurred by taxpayers, including valuation fees, can easily be £10,000 or above.In particularly protracted cases, the timescale can exceed three years considerably and the costs may well be much higher than £10,000.
Appendix B in Troup et al. ( 2020) provides a systematic overview of probate costs and timescales for the leading private client firms in the UK. 27Abstracting from straightforward cases, the mean timescale for applying for the grant of probate is between three and seven months among the included firms.Duration from grant of probate to completion of the process is another 6-14 months, resulting in a total administration timescale of 9-21 months.Averaged over all firms that express fees as a percentage of estate value, probate costs range between 1.9 per cent and 2.8 per cent of the gross value of the estate.Ignoring simple cases, average costs in absolute terms are £22,800 for medium complex estates, up to £68,700 for highly complex estates.For simple cases, the total timescale is generally 3-12 months and costs are between £3,000 and £12,000.As these figures refer to the top UK private client firms that usually handle the most complex and high-value cases, the reported costs are presumably higher than average probate fees.
Probate is a complicated process that involves activities serving the purpose of IHT compliance, such as form filling, valuing assets, providing legal advice and solving disputes with HMRC, as well as activities that are unrelated to taxation, such as applying for probate, verifying the beneficiaries, liquidating assets and settling liabilities, solving disputes over wills and distributing the estate.Another important task, serving both IHT compliance and non-tax-related purposes, is the identification of all assets and liabilities of the deceased.This is generally a much easier and less costly endeavour if there is a living taxpayer helping with the identification process.Further, IHT is a quite complex tax and filing IHT returns can involve many long and complicated forms. 28A comprehensive wealth tax would apply fewer reliefs than IHT and cumulation of past lifetime gifts would be irrelevant as well, which should reduce compliance costs considerably.Thus, a substantial share of probate costs is not relevant for compliance with a wealth tax.
Troup et al. ( 2020) assume that at least half of the administrative activities related to probate would be required for compliance with a wealth tax.On this basis, they conclude that taxpayer costs could range between 1 per cent and 1.5 per cent of total assets in the first year of levying a wealth tax, due to their estimate that probate costs are typically 2-3 per cent of estate value.However, a comparison of these numbers with official data on IHT compliance suggests that they may overestimate the average administrative costs to taxpayers.As the Office of Tax Simplification (2018) notes in the Inheritance Tax Review, in a sample of about 800 estates provided by HMRC, 'on average an inheritance tax form was filed, and a payment of tax made, within four months of the death'.Further, the review states that only around 10 per cent of payments were made after the deadline for IHT payments of six months.In contrast, the mean timescale for probate declared by the top private client firms surveyed in Troup et al. ( 2020) is 9-21 months.Based on the observation that the average timescale of IHT compliance is three to four times lower than the midpoint of the range for probate timescales, I think that 0.6-0.7 per cent is a more realistic estimate of the average compliance costs for IHT as a share of estate values.Because a well-designed wealth tax would be much simpler, the compliance costs should be significantly lower.Even the conservative assumption that half the costs of IHT compliance are incurred in the case of a wealth tax implies that administrative costs to taxpayers are around 0.3 per cent of chargeable wealth.Thus, it appears that a more representative estimate of wealth tax costs derived from the experience of IHT would be in the range of 0.1-0.5 per cent of total assets for most taxpayers.The evidence from other countries described below suggests that taxpayer costs could even be below this range.
There are two potential explanations why the figure in Troup et al. ( 2020) may be an overestimate for the average taxpayer.First, given the many differences between the probate process and compliance with a wealth tax discussed in the paragraph above, the assumption that 'at least half' of the administrative activities related to probate apply to a wealth tax as well seems conservative.Second, the estimate of probate costs in Troup et al. ( 2020) is based on the experience of the top law and accounting firms where we could expect to find the most complex and expensive cases, so they are likely to be an upper bound, as described earlier.
The estimates based on the evidence from IHT are for the costs that would be incurred in the first year of operation of an annual wealth tax, or for a one-off wealth tax.Such costs would fall in subsequent years under a recurring wealth tax due to repeated filing and economies of scale in compliance activities, although the cost savings depend on the mandated interval of revaluation and the extent of change in the asset composition of taxpayers.As mentioned before, an important predictor of compliance costs related to IHT is whether good records have been maintained during lifetime.An annual wealth tax would avoid this cost-driver, at least after the first year, by establishing a reliable, periodic filing process.

International experience
Additional evidence on the costs of administering a wealth tax to taxpayers comes from the experience with wealth taxes in other countries.However, there are only a few data points as compliance efforts of taxpayers are often difficult to quantify.
In Germany, where a wealth tax was imposed until 1996, the administrative cost of the wealth tax for taxpayers was estimated to be around 12.3 per cent of the wealth tax raised, although it is not well documented what underlying activities account for these expenses. 29,30At the time of this assessment, the wealth tax rate for natural persons was 0.5 per cent,31 which suggests that the administrative costs to taxpayers represented around 0.06 per cent of taxable wealth.
In a more recent peer-reviewed study based on a microsimulation model using data from the German Socio-Economic Panel (SOEP) adjusted for top wealth concentration, Bach et al. (2014) estimate that the compliance costs to taxpayers induced by a potential reintroduction of the German wealth tax would be much lower, between 0.6 per cent and 3.6 per cent of the wealth tax due, depending on design choices regarding personal allowance, child allowance and specific allowance for business property.Using the flat annual wealth tax rates between 0.4 per cent and 0.9 per cent underlying the simulations, the costs can be expressed as a percentage of taxable wealth.This calculation implies that the administrative costs to taxpayers represent 0.005-0.02per cent of taxable wealth.The variation in the costs across the different simulations is mainly explained by the different numbers of taxpayers that are subject to the wealth tax depending on the allowances.The fact that the cost estimates in Bach et al. ( 2014) are at the lower end of the range of estimates in the literature, and generally below estimates for existing wealth taxes, casts some doubt on whether their data on individual cost rates and time needed for compliance provide an accurate approximation of taxpayer outlays for their simulations.For illustration, their results seem to imply that the compliance costs to taxpayers with €1 million in taxable wealth would be between €50 and €200 -a surprisingly low amount.Note, however, that this example does not distinguish individual costs from average costs.As the evidence from ATED and the wealth tax in Ireland (see below) suggests, compliance costs as a share of taxable wealth may well be above the overall average for the moderately wealthy close to the exemption threshold and decrease as we move up the wealth distribution.
Based on a small sample of individuals subject to the Irish wealth tax, Sandford and Morrissey  (1985) find that average compliance costs of taxpayers, as directly observed in the form of professional fees, were as high as 18.5 per cent of wealth tax revenue.Given that the Irish wealth tax applied a single rate of 1 per cent, 32 the compliance costs were around 0.19 per cent of taxable wealth.Despite its significant magnitude, this value is a lower bound for the total taxpayer costs as only directly observable expenses are included.However, note that the Irish wealth tax was only levied between 1975 and 1978.Had the tax been in place longer than this three-year period, the administrative costs would undoubtedly have fallen over the next years, 33 but it is very hard to assess what share of the initial cost would have faded in the long run.Furthermore, Sandford and Morrissey (1985)  show that compliance costs among taxpayers are distributed regressively, which is in line with the patterns observed for current UK taxes such as ATED.The reasons are that taxpayers marginally above the exemption threshold pay very little tax but incur sizeable administrative costs and that there are economies of scale in compliance efforts.This is likely a reflection of the fixed cost nature of filing returns and valuing property.
The United States has never levied a comprehensive annual wealth tax.However, rapidly rising income and wealth inequality has sparked a debate about the introduction of a wealth tax.Most prominently, during the 2020 Democratic Party presidential primaries, candidates Bernie Sanders and Elizabeth Warren presented policy plans to impose an annual wealth tax with high rates on very affluent taxpayers. 34In an effort to evaluate the desirability of a wealth tax in the US context, Leiserson (2020) uses information on deductible expenses from estate tax returns in 2017 that report gross estate above $20 million to estimate that compliance costs to taxpayers would amount to around 0.3 per cent of total assets.Assuming a tax rate of 2 per cent on wealth above $25 million for married couples and $12.5 million for individuals, Leiserson (2020) provides an estimate for administrative costs to taxpayers of 19 per cent of wealth tax revenue.Comparing this figure to compliance costs due to federal income tax in the US, which Marcuss et al. (2013) estimate to be a little over 10 per cent of the tax take, suggests that the administrative costs to taxpayers from a wealth tax could be almost twice as high as from income tax. 35Note that a higher wealth tax rate would mechanically lower the ratio of taxpayer costs to tax revenue, because the estimate in Leiserson (2020) is ultimately based on compliance costs for the estate tax in percentage of the gross value of the estate.
Finally, it is worth mentioning that the observation of substantial costs for administering a wealth tax extends beyond the context of high-income countries.In India, the administrative costs of the 32 Sandford and Morrissey, 1985. 33 Sandford and Morrissey, 1985. 34 For a further examination of wealth tax proposals in the US, including the costs of administration, see Scheuer and Slemrod (2021).
wealth tax for both taxpayers and the tax authority were believed to be high as well, contributing to its abolition in 2015.36

Conclusion on costs to taxpayers
To assess the magnitude of compliance costs that taxpayers incur in the case of a wealth tax, this section has presented evidence from UK taxes on wealth and wealth taxes in other countries -both in absolute numbers in the form of professional fees for compliance activities and relative to taxable wealth or wealth tax revenue raised.
Considering the overall evidence from existing UK taxes on wealth and from international experience, my central estimate for the costs of administering a well-designed wealth tax for taxpayers is 0.1 per cent of taxable wealth.The lower bound is likely around 0.05 per cent of taxable wealth, similar to taxpayer costs for ATED, which is in principle a simpler charge to administer than a wealth tax although a broad-based wealth tax could avoid some of the costs incurred due to disputes over reliefs, and to the repealed wealth tax in Germany, where costs were reduced because real property did not have to be valued regularly.This lower-bound estimate is significantly larger than the simulation results for a new wealth tax in Germany by Bach et al. ( 2014), which appear be on the low side.The upper bound is assumed to be about 0.3 per cent of taxable wealth, which is consistent with my interpretation of the evidence on IHT compliance as well as the estimate for a wealth tax in the US by Leiserson (2020) that is based on estate tax data.Given that this upper bound is above the estimate for the Irish wealth tax, which was levied before digitisation helped to reduce administrative efforts and is generally considered to be an expensive charge, this is likely a conservative figure.
It is important to note that these numbers provide estimates for the average costs to taxpayers without attempting to assess how the costs vary by individual wealth.Taxpayer costs as a percentage of total assets could increase with individual wealth (in percentage terms) because assets that are hard to value are held more frequently by wealthier individuals, but they could also decrease due to the fixed cost element of filing and valuations.
When assessing the compliance costs of a potential wealth tax, an important challenge is how to extrapolate from evidence on other taxes, specifically probate and IHT costs in the UK.In addressing this challenge, I come to different conclusions than Troup et al. (2020), whose appraisal suggests that the taxpayer costs of a UK wealth tax could be significantly higher than the estimates based on international experience presented in this paper.As argued earlier, because of the complexities of IHT, the fact that many activities necessary for probate and IHT compliance would not be relevant for a wealth tax and the presumed selection bias of the estimate that is based on the fees of the top private client firms in the UK, the figure provided by Troup et al. ( 2020) is likely to be an upper bound, not a representative estimate.Adjusting the estimate for probate fees reported by Troup et al. (2020) to reflect these considerations provides a reference point for taxpayer costs that is more in line with the evidence from other countries.
Depending on the wealth tax rate, the administrative costs to taxpayers may still be significant compared with the wealth tax due.For illustration, assuming a 1 per cent wealth tax and costs of 0.1 per cent of taxable wealth, taxpayer costs represent 10 per cent of the charge.In this example, the ratio of taxpayer costs to wealth tax due is lower but of a similar order of magnitude as the historical estimates for the wealth taxes in Germany and Ireland.Moreover, it is consistent with the current cost figures for ATED, which are likely to be higher for properties in the lower value bands and lower for properties in the higher value bands.
Regarding the fees for the main compliance activities, which are form filling, valuing assets and providing legal advice and solving disputes, two things can be noted.First, the efforts and costs for form filling and legal advice in the case of a well-designed, broad-based wealth tax would probably be higher than for ATED but lower than for IHT, given the simplicity of ATED and the complexity of IHT.Second, valuation costs are likely to be higher than for both ATED and IHT as ATED only applies to a single asset and IHT applies a lot of reliefs to assets that are difficult to value.To indicate an order of magnitude based on the evidence presented above, a reasonable range for the costs of form filling for a mid-sized, rather simple estate would be from £1,500 to £3,000 for a well-designed wealth tax.Valuation costs depend on the asset.For most properties, valuation will probably cost somewhere between £250 and £3,000, strongly depending on property characteristics, the contracted firm and thoroughness of the survey.Valuation costs could increase up to £10,000 for more valuable and complex properties.The valuation of private company shares is more expensive and may cost anywhere from £2,500 to £25,000.However, as shown before, hard-to-value assets such as unlisted shares become a significant portion of wealth only at very high levels of wealth.The costs of resolving disputes are only incurred by a fraction of all taxpayers, with the exact number depending on the compliance morale and the frequency of investigations by HMRC (as noted above, HMRC annually opens about 5,500 IHT investigations, compared to the number of taxpaying estates per year, which is around 25,000).The additional costs for taxpayers due to legal advice and resolving disputes can be in the thousands of pounds and beyond £10,000 in the most protracted cases.Given the uncertainty about the average costs of each of these activities, it does not seem sensible to sum up these activities to provide a point estimate for the absolute administrative costs for the average taxpayer.
There are many factors that drive variation in the costs of these activities: size of the estate, because larger estates include more individual assets and cover a broader range of asset types; complexity of the estate; compliance morale, as providing imprecise valuations can lead to larger costs later if the return is challenged by the tax authority; availability of advice, for example, because taxpayers at the very top of the wealth distribution work with family offices that provide the listed services on a permanent basis, implying that there is only little additional cost if any.Glucksberg and Burrows  (2016) report that multi-family offices start to become relevant when families own total wealth of above $100 million whereas single-family offices begin to matter for families with wealth above $250 million.
Providing estimates for the administrative costs is a difficult and somewhat speculative endeavour as they inherently depend on the design of the wealth tax.It is worth noting some design choices that may reduce administrative costs to taxpayers according to the suggestions of tax professionals and authorities.Compliance could be simplified by integrating the wealth tax with the rest of the tax system, for example through coordination with income tax by including wealth tax on the annual tax return forms or at least aligning the timing. 37Other countries that have or have had a wealth tax, such as France, Switzerland and Spain, follow similar approaches.This may also help to alleviate the problem with ATED that taxpayers benefitting from a relief do not know that they still have to file a return and they then incur hefty penalties.Moreover, form filling ought to be digitised -the selfassessment system for income tax in the UK is generally considered to function well and could serve as an example.In Norway, filing wealth tax returns seems particularly efficient because the forms are fully digitised and prefixed with information on the wealth tax base provided by banks, listed and unlisted companies (third-party information).Banding has both advantages and disadvantages.On the one hand, it may reduce some costs of valuation as the assessed value is allowed to be less precise if it obviously falls within the middle of the band.If the wealth tax were effectively capped (with a fixed charge for the top band), then this could reduce the administrative costs to almost nil for the wealthiest individuals who would know that they were in the top band and therefore subject to the cap.On the other hand, a banded approach would introduce an element of regressivity in the tax schedule at the top, limit the revenue received, and only benefit the tiny number of individuals above the cap.Further, banding could induce some taxpayers assessed to be just above a threshold to obtain additional valuations attempting to be placed in the lower band.Finally, the mandated interval for revaluations affects compliance costs considerably.Determining the optimal frequency of valuation updates requires balancing the trade-off between precision of valuations and associated compliance costs.

COSTS TO THE TAX AUTHORITY
This section aims to shed light on the costs of administering a wealth tax for the tax authority.The administration, collection and enforcement of a wealth tax can involve various activities on the part of tax authorities, including -but not limited to -processing forms, producing and examining valuations, conducting audits and going to litigation.Technically, I consider all costs incurred by government agencies that are related to the routine administration of a wealth tax, even if an agency is not institutionally part of the tax authority.
Following the same structure as the previous section, Section 3.1 discusses insights from existing UK taxes on wealth, whereas Section 3.2 presents information obtained from tax administrations in countries that impose or have imposed a wealth tax, as well as evidence from the literature.

Experience from UK taxes on wealth
A useful starting point for assessing the administrative costs of a wealth tax to the tax authority in the UK context are official statistics on the costs of administering existing taxes -in particular taxes on wealth such as IHT.HMRC ( 2019) reports total revenue of £628 billion in the tax year 2018-19.The administrative costs of HMRC totalled £4 billion during the same period.Hence, taking into account all taxes, the administrative costs to the tax authority amounted to 0.52 per cent of total tax revenue. 38The administrative burden is not equally distributed across individual taxes.According to information provided by HMRC, 39 the annual costs of administering IHT are £35 million.Expressed as a proportion of the IHT revenue of £5.3 billion, the administrative costs make up 0.66 per cent of the IHT take -not much more than the overall average cost share.For comparison, collecting income tax (through self-assessment and pay as you earn) costs 0.72 pence, corporation tax costs 0.60 pence, national insurance contributions cost 0.18 pence and VAT costs 0.58 pence per pound of tax revenue. 40n the most recent period for which full data are available, the total number of taxpaying estates passing on death in 2017-18 is 24,200 (3.9 per cent of all UK deaths) with a total net capital value of £27.3 billion. 41This suggests that the administrative costs of IHT on part of HMRC are about £1,450 per taxpaying estate -well-invested expenses for an average IHT liability of £197,000.Multiplying the administrative costs in percentage of IHT revenue by the standard IHT rate of 40 per cent implies that they amount to around 0.26 per cent of taxable wealth. 42Compared with the total net value of taxpaying estates, including asset values below the exemption threshold, the costs of administering IHT represent about 0.13 per cent of chargeable wealth.Considering not only taxpaying estates but the total net capital value of all estates for which IHT returns are filed, which is £95.2 billion, administrative costs represent around 0.04 per cent of estate wealth.Although non-taxpaying estates are typically of lower value, they presumably still generate some administrative costs for HMRC, so 38 HMRC, 2019. 39 Troup et al., 2020. 40 HMRC, 2019. 41 HMRC, 2020b. 42 Using the standard IHT rate of 40 per cent seems appropriate given that only a small fraction of estates is charged at the reduced 36 per cent rate (see HMRC, 2020b, Table 12.2).
it is a priori not clear whether the denominator should take into account all IHT-filing estates or only taxpaying estates.
The many reliefs from IHT, which make it inherently difficult to put the administrative costs in a meaningful relation to the associated asset values, complicate the comparison with a broadbased wealth tax levied on the same segment of the population as these exemptions would not be applicable. 43Adding exempted assets such as pensions and business wealth to the IHT base would result in higher valuation costs while eliminating the need to police reliefs.It is likely that the increase in valuation costs would dominate on average, so the administrative costs would increase as a result. 44owever, estimating the precise effect on the magnitude of administrative costs requires an extensive modelling exercise, which is beyond the scope of this paper. 45

International experience
Official statistics on the administrative costs of the wealth tax for the tax authority have been surprisingly difficult to obtain, even for countries that currently levy a wealth tax.Thus, this section combines information from government statements, from the literature on wealth taxes and from tax administrations in countries that still have a wealth tax -Norway, Spain and Switzerland -which were contacted and asked directly for information on administrative costs.In France in 2016, before the wealth tax (impôt de solidarité sur la fortune, ISF) was abolished and replaced by a tax on residential property (impôt sur la fortune immobilière, IFI, established in 2018), total administrative costs for the tax authority amounted to close to €103 million. 46The total costs can be decomposed into €35.3 million for management (including activities such as valuation, collection and litigation) and €67.6 million for 'control' (including activities such as enforcement and tax audits).These costs consist of payroll expenses for all jobs directly and indirectly involved in collecting the wealth tax as well as the share of operating costs, such as property or IT, attributed to the administration of the wealth tax.Administrative costs as a percentage of wealth tax revenue were 2.07 per cent. 47In comparison, the ratio between administrative costs and the respective tax revenue was 1.8 per cent for income tax and 2.52 per cent for dwellings tax.Thus, the administrative efforts related to the wealth tax were not significantly higher than for other major taxes.For illustrative purposes, the administrative costs can also be computed per wealth tax payer using the information that there were 351,152 wealth tax returns filed in 2016, resulting in total wealth tax revenue of €5,051 million. 48his exercise suggests that administrative costs per wealth tax return were around €290, while the average wealth tax payment was about €14,400.Given that net chargeable assets were about €986,556 million in 2016, the administrative costs for the tax authority represent 0.01 per cent of chargeable wealth. 49Note that this number may understate the magnitude of the administrative costs because the figure for net chargeable assets provided above does not account for some of the numerous reliefs that were applied under the French wealth tax.However, the administrative costs for the tax authority are 43 Chamberlain (2021) examines the design of the wealth tax base, concluding that a wealth tax should, in principle, cover all types of assets. 44This conclusion very likely holds even when acknowledging that rough valuations are already being produced for some assets that qualify for reliefs, such as agricultural property relief (APR) or business property relief (BPR), due to taxpayers needing to determine the amount of relief to claim and HMRC balancing the value of a case against its litigation costs when deciding whether to dispute on qualifying status. 45 Advani et al. (2021) assess the effect of broadening the IHT base on administrative costs, tax revenue and estate values. 46This official information on the administrative costs of the French wealth tax (ISF) was provided by the Minister of Public Action and Accounts in response to a formal enquiry in the French Senate in June 2019 (available at https://www.senat.fr/questions/base/2019/qSEQ190209168.html). 47To be precise, this is the ratio between administrative costs and gross yield of the wealth tax without adjusting for tax refunds. 48Direction générale des Finances publiques (DGFiP), 2017. 49Detailed statistics on the number and assets of French wealth tax payers between 1999 and 2017 are available at https://www.impots.gouv.fr/portail/statistiques. bounded at 0.03 per cent of taxable wealth when accounting for the reliefs because this number would imply that the average wealth tax rate was equal to the top marginal wealth tax rate of 1.5 per cent. 50he reported ratio between administrative costs and wealth tax receipts in France of 2.07 per cent in 2016 is somewhat higher but still consistent with the 1.6 per cent in 1997 reported by Pichet (2007).Similarly, collection costs for the wealth tax as a percentage of wealth tax revenue were just a little above the total administrative costs that amounted to 1.4 per cent of total tax revenue in France in 1997. 51n Germany, the administrative costs of the wealth tax that was discontinued in 1996 have been controversially discussed, with estimates strongly varying in magnitude. 52The federal government estimated that the costs of administration, as a percentage of wealth tax revenue raised, amounted to 4-4.5 per cent. 53However, this figure does not include the costs of property value determination, so the true costs should be higher.Bauer (1988) estimates a ratio of 10.8 per cent when attributing 20 per cent of the administrative efforts that also serve property tax and local business tax, in particular activities related to assessment of the tax base, to the wealth tax. 54For comparison, Bauer (1988)  estimates that, taking into account all taxes, the ratio between total administrative costs to the tax authority and total tax revenue was 1.87 per cent in 1983.Other studies conclude that the costs of administering the wealth tax for the tax authority could have been as high as 20 per cent of wealth tax revenue, although the underlying assumptions are not well documented. 55By multiplying again each estimate with the relevant wealth tax rate for individuals at the time, which was 0.5 per cent in 1978-94 and 1 per cent in 1995-96 before the wealth tax was discontinued, 56 it is implied that the administrative costs amounted to around 0.04-0.1 per cent of taxable wealth.
In contrast, the aforementioned study by Bach et al. (2014) estimates that the administrative costs for the tax authority of a potential German wealth tax could be as low as 0.2-1.4 per cent of wealth tax raised, depending on the magnitude of personal allowance and child allowance, based on microsimulations using standard figures for valuation and assessment costs provided by the fiscal authorities.Revenue losses from valuation corrections for real estate could add 1.9-4.1 per cent of wealth tax revenue to the costs.By adding up these direct and indirect costs incurred by the tax authority and applying the underlying flat annual wealth tax rates of 0.4-0.9 per cent, it is implied that the administrative costs of the tax authority represent about 0.015-0.03per cent of taxable assets.These estimates are lower than the historical evidence from Germany but very close to the official statistics on the French wealth tax in 2016, which suggests that they are not unrealistic in modern-day tax systems.
The work on the Irish wealth tax by Sandford and Morrissey (1985) also provides a rough estimate of the administrative costs for the revenue equalling 14 per cent of the wealth tax take.Applying again the flat tax rate of 1 per cent, the implication is that these costs represent 0.14 per cent of the tax base.The conjecture that the administrative costs might have been lower in the long run applies in this case as well.However, Sandford and Morrissey (1985) report that the administration of the wealth tax was not adequately staffed, which might have kept the administrative costs to the revenue low while increasing the compliance costs for taxpayers.
In response to my enquiries, the tax authorities in the OECD countries that currently levy a wealth tax -Norway, Spain and Switzerland -have only been able to provide indicative evidence on the costs of administering the wealth tax. 57he Ministry of Finance in Norway did not have separate reports on, or estimates of, the costs of administering the wealth tax, although administrative costs are taken into account when evaluating tax reforms.Furthermore, the Ministry confirmed that the wealth tax causes more challenging valuation issues than other taxes, for both taxpayers and the tax authority.To reduce administrative costs, Norway has introduced a system for the valuation of real estate that is updated almost automatically from year to year.The development of this system entailed high one-off costs but was able to reduce ongoing running expenses.However, taxpayers can dispute the official valuation if it exceeds the documented market value, which has generated new costs.The assessment of most assets other than real estate relies on third-party reporting that is used to prepopulate the self-assessment tax returns.Unlisted firms declare the firm value for wealth tax purposes in their business tax return.The tax value is somewhat formulaic based on the balance sheet, but special reporting is needed for commercial property.Goodwill and self-developed patents are explicitly exempted from the firm value for wealth tax purposes.If all these systems are in place, the running costs of administering a wealth tax do not seem to be extraordinarily high.In short, with a combination of exemptions and some formulaic valuations, ongoing costs may be kept relatively low.
Because the wealth tax in Switzerland is collected only at the subnational level (i.e. by cantons and municipalities), the Swiss Federal Tax Administration does not have information on the administrative costs. 58The federal political system of Switzerland grants extensive financial and fiscal autonomy to cantons, and partially to municipalities, and does not prescribe standardised accounting models.I contacted the tax authorities in all 26 Swiss cantons to enquire about the administrative costs associated with the wealth tax.Most cantonal tax offices declared that they do not produce statistics on these costs.The main reason for this lack of information is that the processes to administer the income tax, the wealth tax and the refunding of the withholding tax are tightly entangled, so a precise attribution of costs to individual taxes is difficult and might not be informative.However, the qualitative and quantitative information provided by the cantonal tax offices sheds light on the administrative burden of the Swiss wealth tax.
According to the cantonal tax administrations, the administrative effort for the joint assessment of income tax and wealth tax is mainly spent on examining taxable income and the numerous deductions, such as commuting costs, pension account contributions and child benefits.Most activities needed to administer the wealth tax serve other purposes as well.Collecting and checking information on taxable assets, which in the case of financial products leads to the compilation of a comprehensive list of securities, serve as a plausibility check of capital income flows that are subject to income tax.Moreover, Switzerland levies income tax on imputed rents, so valuing property is necessary for this purpose anyway.This supporting role of wealth tax in the enforcement of income tax is quantitatively important as receipts from income tax are many times higher than from wealth tax. 59In addition, determining the value of securities is important for refunding the withholding tax.
Given this overlap in administrative activities, several cantonal tax authorities have pointed out that the assessment of the wealth tax is merely a by-product of these processes.Most of the administrative workload for the wealth tax -gathering personal data in the tax register, processing forms, sending out assessments and invoices, enforcement and collection of payments -is incurred anyway.Only rarely are additional checks carried out that only serve the purpose of the wealth tax. 57Spain's central government declared that they do not have information on the collection costs of the wealth tax because its administration is largely delegated to the regions.The responses of the regional governments to my enquiries are pending. 58For a more detailed description of the institutional features of the Swiss wealth tax, see Eckert and Aebi (2020). 59Taking into account all state levels (federal, cantonal and municipal), income tax revenue is about seven to eight times higher than wealth tax revenue in Switzerland in 2017.For some cantons, this ratio is ten or above.See the annual report on Switzerland's financial statistics for more information, available at https://www.bfs.admin.ch/bfs/en/home/statistics/general-government-finance/tax-system-receipts/receipts.assetdetail.10287487.html.
Despite the general lack of official statistics, some cantons have provided data on the administrative expenses for the wealth tax.The canton of Aargau (population of around 690,000 in 2020) 60 estimates that 30 full-time equivalents (FTEs) are tasked with the administration of the wealth tax.In 2016, the latest year for which data are available, wealth tax revenue collected by the canton and municipalities was 282 million Swiss francs. 61At the same time, taxable wealth amounted to 79,002 million Swiss francs.The total number of taxpayers in the canton of Aargau, who must all declare their assets on the tax return in the Swiss system even if their wealth is negligible, was 375,111.For illustrative purposes, we can do a back-of-the-envelope calculation assuming an average wage of 60,000-120,000 Swiss francs among the personnel administering the wealth tax.The addition of overheads of 60-80 per cent on top of salaries results in operating expenses of 2.88-6.48 million Swiss francs.Thus, this rough calculation suggests that the costs of operating the wealth tax in the canton of Aargau represent 0.004-0.008per cent of taxable wealth and 1.0-2.3 per cent of wealth tax revenue.Put in relation to the total number of taxpayers, the average cost per taxpayer is as low as 8-17 Swiss francs, compared to average wealth tax payments of about 750 Swiss francs.The tax office at the canton of Aargau notes as well that part of the costs of assessing wealth would be incurred anyway for the purpose of enforcing the income tax, so this is an upper bound.
The canton of Ticino (population of around 350,000 in 2020) reports aggregate figures for the joint taxation of income and wealth.In Ticino, about 200 FTEs are employed for the administration of the income tax and the wealth tax, resulting in payroll costs of around 18 million Swiss francs.Licensing and maintenance for computer software needed for the assessment of the income and wealth tax cost an additional 5.8 million Swiss francs.Income tax receipts total about 1.9 billion Swiss francs while wealth tax revenue amounts to 255 million Swiss francs. 62These numbers suggest that the joint administrative effort for income tax and wealth tax (payroll and IT costs) represents 1.1 per cent of the intake in the canton of Ticino.This calculation includes the revenue from the federal income tax because its assessment and collection are almost entirely carried out by the cantons. 63The cost estimate from the canton of Ticino is consistent with the information from the canton of Aargau reported above.

Conclusion on costs to the tax authority
Drawing conclusions on the magnitude of administrative costs to the tax authority from the evidence presented above ought to be done carefully, given the significant variation in policy features, size of jurisdiction and period during which the wealth tax was imposed.Tax systems have evolved considerably over recent decades.The automation and digitisation efforts undertaken have contributed to improvements in administrative efficiency, as the Norwegian and Swiss models show.
Although the experience with the Irish wealth tax levied in 1975-78 suggests that a wealth tax may produce very substantial administrative costs, the short period during which it was levied and the improvements in administrative efficiency over recent decades raise doubts whether these costs are accurate reference points for a wealth tax in the UK if it were implemented today.The overall evidence suggests a central estimate for the administrative costs of a modern wealth tax for the tax authority of about 0.05 per cent of taxable wealth.As a lower bound, I think the costs could potentially be as low as 0.01 per cent, which is the order of magnitude of the corresponding figure for the French wealth tax.Notably, the administrative costs as a share of taxable wealth seem to be even lower for 60 Population data for Switzerland from the Federal Statistical Office are available at https://www.bfs.admin.ch/bfs/en/home/statistics/population.html. 61These figures only consider taxpayers who are resident in the canton of Aargau.The inclusion of non-resident taxpayers results in wealth tax revenue of around 291 million Swiss francs in 2016. 62The tax administration of the canton of Ticino communicated these numbers based on the official cantonal budget for the year 2021. 63The Federal Tax Administration has a supervisory and coordinating role for these processes, but these costs are negligible.
the Swiss wealth tax, which has a low threshold and a broad base. 64The upper bound is likely around 0.1 per cent of taxable wealth, which is at the higher end of the estimated range for the costs of the German wealth tax, and below but of a similar order of magnitude as the costs of the Irish wealth tax and the mid-point of the estimates for IHT.The complexities of IHT and the administrative efficiency gains since the abolition of the wealth tax in Germany and Ireland, as well as the evidence from more recent periods and particularly France and Switzerland, suggest that the administrative costs to the tax authority can be kept below that upper bound.
How much of wealth tax revenue is spent on administering the levy again depends on the tax rate.To illustrate, administrative costs of 0.05 per cent of taxable wealth represent 5 per cent of associated revenue in the case of a 1 per cent wealth tax and 2.5 per cent of associated revenue if the wealth tax rate is 2 per cent. 65Note that the recent data from France and Switzerland show that the administrative costs to the tax authority account for around 2 per cent of wealth tax revenue raised in both countries, despite imposing average wealth tax rates below 1.5 per cent.These numbers imply that administering the wealth tax likely continues to generate higher costs as a share of associated revenue than other taxes.66However, the administrative efforts for the wealth tax may contribute towards easing the burden of administering and enforcing other taxes, as the example of Switzerland shows.These positive externalities are hard to quantify.
The Swiss model also demonstrates that the wealth tax must be well integrated into the tax system to keep the administrative burden low.Moreover, it is helpful to automate administrative processes and digitise the filing of tax returns.Establishing extensive third-party reporting can reduce the administrative efforts for both taxpayers and the tax authority.The fewer reliefs and exemptions there are, the simpler the forms overall and the fewer boundaries there are to navigate, although it also necessarily means more valuations have to be done, which can increase costs.
Finally, it is important to point out that variation in the costs of administering a wealth tax to the tax authority does not just reflect bureaucratic inefficiencies.Rather, more intensive administrative efforts on the part of the tax authority can improve compliance, reduce the tax gap and lower the administrative burden of taxpayers, for example.

CONCLUSION
The administration of a wealth tax is a complex endeavour for both taxpayers and the tax authority.
The evidence collected and discussed in this paper gives some indication of the likely costs of administering a wealth tax in the UK based on experience with existing UK taxes on wealth and information from other countries that currently levy a wealth tax or have done so in the past.As a tentative conclusion on the administrative costs of a well-designed wealth tax based on the presented evidence, my central estimate for taxpayer costs is 0.1 per cent of taxable wealth with a lower bound of 0.05 per cent and an upper bound of 0.3 per cent, whereas the central estimate for the administrative costs to the tax authority is 0.05 per cent of taxable wealth with a lower bound of 0.01 per cent and an upper bound of 0.1 per cent (see Table 2).This pattern is consistent with the finding from the tax literature that the costs to taxpayers exceed the expenses of the tax authority. 67It is important to note that these figures represent a 'best guess' based on the available evidence, rather than a precise calculation.Further, they do not account for transition and implementation costs that arise when introducing a new tax.
It is noteworthy that these figures represent estimates for the average costs as a percentage of taxable wealth.I have not attempted to model precisely how taxpayer costs as a share of taxable wealth vary with total assets due to a lack of data on that issue.However, to assess the welfare implications of administrative costs, it is important to examine which part of the distribution they fall on most heavily.I observe that there are two countervailing narratives about how costs and taxable wealth may be connected.On the one hand, two factors indicate that the costs are likely to decline as a share of taxable wealth.First, this is what is observed under ATED and the wealth tax in Ireland, as shown in Section 2 of this paper.Second, it seems very likely that there is a fixed cost element to filing and valuations, with some element of variable cost that may even be capped at the highest levels (i.e. at 'family office' levels of wealth).On the other hand, the evidence that the number and value-share of hard-to-value assets tend to increase with total assets is a factor that works in the opposite direction. 68onsequently, I conclude that in the absence of more detailed data on taxpayer costs, it is reasonable to assume that the average cost holds across all taxpayers up to a maximum 'cap' represented by the level of wealth at which a taxpayer could be expected to employ permanent staff to manage their wealth (i.e. at 'family office' levels of wealth).
Any sensible policy proposal for a wealth tax ought to balance the potential tax revenue against its potential costs.This comparison reveals what share of the tax take is effectively available for government spending and what costs are incurred by taxpayers beyond direct tax payments.As it is clearly undesirable to levy a tax that produces costs that surpass its revenue, the costs of administering a wealth tax provide a lower bound for the wealth tax rate to consider.
Expressing the administrative costs as a share of wealth tax revenue requires the assumption of a wealth tax rate.Adding up the central estimates for the costs to taxpayers and the tax authority reported above and assuming a 1 per cent wealth tax imply that total administrative costs represent 15 per cent of wealth tax revenue raised.This is a significant cost, somewhat above the estimate for the current administrative costs for IHT of 4-13 per cent of tax revenue that result when summing up the costs to taxpayers and the tax authority presented in this paper. 69Nonetheless, the overall evidence strongly suggests that the total administrative costs of a UK wealth tax as a percentage of wealth tax revenue could be kept substantially below the historical reference point of 25 per cent estimated by Sandford and Morrissey (1985) for the Irish wealth tax levied in the 1970s.This seems sensible given that technological progress has raised administrative efficiency over recent decades.
In the end, the costs of administering a wealth tax will depend crucially on design choices.A higher exemption threshold tends to reduce costs, because the necessary assessment of wealth would be carried out for a lower number of taxpayers.However, based on the suggestive evidence presented 68 Advani et al., 2021. 69 The reported range for the total administrative costs of IHT is computed as follows: multiply my estimate for average IHT compliance costs as a share of estate values from Section 2, 0.6-0.7 per cent, with the total net value of all taxpaying estates, £27.3 billion, or total net value of all IHT-filing estates, £95.2 billion, add HMRC's annual costs of administering IHT, which are £35 million, and divide the sum by the IHT revenue of £5.3 billion. in this paper, Switzerland seems to succeed in operating a wealth tax with low rates, a comprehensive tax base and low exemption thresholds efficiently, incurring only moderate administrative costs. 70resumably, Switzerland manages to keep the administrative costs low by integrating the wealth tax well into the tax system, exploiting administrative overlap with other existing taxes and applying formulaic valuation for assets that are hard to value, such as business wealth.Another important cost factor is the revaluation interval.If valuation updates are required less frequently, the administrative costs can be reduced, as the experience with ATED demonstrates.A further insight from ATED is that banding may help reduce the costs of valuation because less precision is required.Lastly, the example of Norway shows that establishing a digital infrastructure that automates third-party reporting and facilitates digital filing may help to simplify compliance and alleviate the administrative burden for taxpayers and the tax authority after the transition period.
Relatedly, the design of wealth taxation would benefit from additional research into the dynamic trade-off between costs to taxpayers and costs to the tax authority.Different regimes allocate different cost shares to the two groups.To make tax policy more efficient and equitable, it is vital to explore which design choices reduce overall administrative costs and which merely shift costs around.In the latter instance, future research could help to determine which side can deliver a given administrative task most efficiently.
A final lesson from this paper is that there is a general lack of standardised, high-quality data on the costs of administering a wealth tax.Despite being an important input for evidencebased policymaking, this information is not routinely produced or published by the responsible tax authorities.While some have generously shared internal statistics for the purpose of this paper, others have stated that they do not collect or analyse data on administrative costs.Given that these costs can be significant, as the evidence in this paper shows, I recommend that this information be compiled and made available to the public as part of the regular governmental statistical publications on tax matters.

A C K N O W L E D G E M E N T S
The author thanks Marie Bjørneby and Emmanuel Ramírez Casillas for helping with requests for information, as well as Arun Advani, John Barnett, Emma Chamberlain, Andy Summers, Edward Troup and three anonymous referees for very helpful comments.The author is grateful to tax professionals at private client firms for providing information about their pricing and to staff at HMRC for answering questions and commenting on the analysis.This does not signify any endorsement or agreement by any of the above of the conclusions in this paper.
A previous version of this work circulated as Wealth Tax Commission Background Paper No. 126.The author received funding as part of the Wealth Tax Commission.The Wealth Tax Commission acknowledges funding from the Economic and Social Research Council (ESRC) through the CAGE at Warwick (ES/L011719/1) and a COVID-19 Rapid Response Grant (ES/V012657/1), and by a grant from Atlantic Fellows for Social and Economic Equity's COVID-19 Rapid Response Fund.

R E F E R E N C E S
Estimates for the costs of administering a wealth tax as a percentage of taxable wealth Administrative costs of a broad-based, well-designed wealth tax to taxpayers and the tax authority as a percentage of taxable wealth.Costs to taxpayers include professional fees for form filling, valuing assets as well as providing legal advice and solving disputes.Costs to the tax authority include expenses for activities such as processing forms, examining valuations, conducting audits and going to litigation.