Hungary: Focus on the wealth tax planned

The introduction of Hungary’s first tax covering total net wealth carries numerous risks

Based on the government’s programme, the Hungarian tax system is set to undergo substantial transformation in the coming years. One of the most significant elements of this transformation is the introduction of a classic wealth tax. No such tax covering total net wealth has existed in Hungary to date, so the planned regulation could represent not only a fiscal turning point, but also one in terms of economic strategy and social policy.

What is a wealth tax?

The essence of a wealth tax is that it taxes not income, but net wealth, i.e. the difference between assets – real estate, securities, business assets, works of art, precious metals, etc. – and debts and liabilities. This in itself introduces a new logic into the Hungarian tax system, which is fundamentally based on income taxation, and affects, at several points, those with greater wealth, including:

• private individuals,
• family businesses,
• trust asset management structures.

International outlook: why is wealth tax a “difficult” type of tax?

International experience from recent decades shows that wealth tax is one of the most sensitive and most complex types of tax. Previously, 12 European countries applied a general wealth tax; today, only

• Switzerland,
• Norway, and
• Spain

maintain this type of tax.

Several countries – such as France and Germany – abolished or transformed their systems specifically because of adverse economic effects and capital outflows, and the tax also raised constitutional issues. Where it still exists, harmful side effects are typically mitigated through lower tax rates, numerous exemptions, and strictly defined valuation rules. Social acceptance of wealth tax is also a critical issue: in Norway and Switzerland, for example, wealth tax applies to relatively broad segments of society yet remains workable because its purpose is transparent – financing the welfare state, healthcare, pensions – and taxpayers “see” what their payments are spent on.

The international examples provide important guidance showing that a wealth tax introduced too quickly, driven by politics and prepared with insufficient professional groundwork, may cause:

• serious social resistance,
• legal disputes,
• capital outflows,
• emigration,
• distortion of competition,
• entrepreneurial uncertainty,
• deterioration in tax morale.

The direction of the Hungarian plans – what is known so far

Based on current government communication, the following information is known about the planned wealth tax:

• the relevant legislation is expected to be adopted by October 2026,
• the law may enter into force on 1 January 2027,
• the government expects revenue of approximately HUF 300–600 billion from it,
• the “largest part” of the revenue may come from taxation of company ownership interests – quotas/business shares and shares,
• according to the plans, it will apply to wealth exceeding HUF 1 billion,
• taxation will be based on self–assessment.

It remains unclear which date’s company value will serve as the starting point for the tax base: based on statements by the prime minister, the intention appears to point towards the values included in the 2025 financial statements.

Based on the information currently available, it appears that the wealth tax will not simply be a “luxury tax”, but a new element extending to entrepreneurial wealth as well, directly affecting company valuation, corporate structures and wealth planning.

Will Switzerland be the model to follow?

Based on earlier government statements, the model to be followed would be the Swiss wealth tax, with relatively low tax rates of between 0.1% and 1%. In Switzerland, after wealth of CHF 1 million – approximately HUF 400 million – annual tax of between a few hundred thousand and a few million forints must be paid. Switzerland’s example shows that the Hungarian legislator will have to take into account, among other things, the coexistence of personal income tax and wealth tax, for example the situation where the person subject to wealth tax earns no income in a given year, and it may also provide guidance regarding exemptions. In Switzerland:

• the wealth tax replaces personal income tax on capital gains of private individuals,
• an annual upper limit on tax payment is in force, under which the combined amount of wealth tax and personal income tax payable may not exceed 60% of annual taxable income,
• real estate used for one’s own housing purposes is exempt from wealth tax up to a specified value threshold.

Key questions: what makes a wealth tax “workable”?

For a wealth tax system to be workable, several conditions must be met simultaneously, based on domestic and international expert opinions:

• Clear objectives

The reason for introducing a wealth tax cannot be merely “additional revenue”. It must be clearly determined whether it is primarily a budgetary revenue instrument serving fairness and redistribution objectives, or whether it is linked to the sustainable financing of specific systems – e.g. healthcare, education, pensions. By defining the objectives, it also becomes clear that success must be measured not only in short–term revenue, but also in social acceptance, the impact on competitiveness, and long–term sustainability.

• Precise yet manageable valuation rules

One of the greatest professional risks of wealth tax is asset valuation. The value of real estate, non–listed companies and works of art is based to a significant extent on estimates. Even a 10–20% valuation difference can result in a substantial tax difference and generate mass legal disputes. An excessively sophisticated, “perfect” valuation system is expensive, slow and difficult to audit; a simplified system, however, may lead to under–taxation or over–taxation.

• Liquidity considerations and safeguards

Wealth tax is not automatically linked to liquid cash flow, which is why protective rules exist in several countries. Examples include a minimum payment rule and the maximisation of the combined burden of wealth tax and personal income tax – see the Swiss example above. These solutions can prevent, for example, an entrepreneur carrying out an investment from being forced to consume wealth in a loss–making year solely because of tax payment obligations.

Social and economic effects – with particular regard to businesses

The potential negative effects of wealth tax may arise at several levels. Based on international experience, a significant portion of wealthy private individuals considers a higher tax burden acceptable if:

• the rate is not prohibitive,
• the rules are predictable,
• the state uses the additional revenue transparently and for specific purposes.

Taxpayers may raise the question of whether a classic wealth tax is truly the most effective tool for imposing a higher public burden on wealthier segments of society. The expert answer is essentially: “it depends”. If the design of the wealth tax meets social expectations and creates a fair, transparent system that promotes social responsibility, then it may be suitable for achieving the expected objective; otherwise, however, several alternatives offering simpler solutions are also available.

Alternatives to wealth tax

For imposing a higher tax burden on wealthier segments of society, the following alternatives exist, for example:

• Progressive personal income tax: more suitable for social segmentation, but currently has low political feasibility.
• A different tax rate on capital income – dividends, interest, capital gains – and on income from, and the sale of, investment properties.
• Taxation of targeted asset elements: high–value real estate, vehicles, boats, and progressive inheritance duty above certain wealth thresholds.

What should entrepreneurs and wealthy private individuals do now?

Although the final regulation is not yet known, based on the announced directions, preliminary preparation is justified in several areas:

• Preparing a wealth map: A complete, consolidated picture of private and business assets, debts and risk points. Identification of assets that may fall within the possible tax base, with special regard to company ownership interests.
• Determining the company valuation starting point: If the company value at the end of 2025 does indeed become the key element of the tax base, financial and capital–structure decisions over the next 1–1.5 years will carry particular weight.
• Reviewing wealth–planning structures: Assessment of trust asset management arrangements, family holdings and generational transfer structures from a wealth–tax perspective: where they may provide protection and where additional tax liabilities may arise.
• Liquidity scenarios: In the case of companies in a loss–making or investment phase, it is especially important to consider from what sources a possible wealth tax payment could be financed.
• Professional monitoring: Once the draft legislation is published, rapid and detailed analysis will be required; it is worth designating internal or external responsible persons already now.

The introduction of wealth tax is one of the most complex planned amendments to the Hungarian tax system. It is not merely a technical issue, but also an economic policy and social issue. The coming months will determine which path Hungary chooses: whether it will try to achieve the declared budgetary and social objectives through a classic net wealth tax, instead of it, or in parallel with it through other, more targeted instruments.