How would a change of government hit high net worth taxpayers?

A vote of no confidence in the prime minister tonight is pushing the government closer to collapse as Brexit talks stump MPs. Geoffrey Todd, partner in the private wealth team at Boodle Hatfield, highlight three of the key concerns for high net worth (HNW) taxpayers should a Labour government led by Jeremy Corbyn come to power

A 50% income tax rate

The 2017 Labour manifesto committed to re-introducing the 50% income tax rate, which would equate to an extra £2,700 in tax on income in the £123,000 - £150,000 band. If this happened, we could expect to see some of the same strategies investors employed the last time a 50% rate was in place.

Longer term investors may shift their focus from investing for income to investing for capital gains. This allows you to defer your capital gain and your tax charge until there is a change to more investor-friendly tax policies.

Investors may also look at making greater use of tax-efficient investment schemes such as venture capital trusts (VCT), enterprise investment schemes (EIS) and seed enterprise investment schemes (SEIS). They could also restructure any long-term incentive plans they may have to make sure that share options come to fruition further into the future, in case taxes are reduced later.

Capital gains tax (CGT) rates returning to a basic 18% and higher rate 28%

Investors have benefitted from CGT at a basic rate of 10% and a higher rate of 20% since April 2016. Labour has said it would return the rates to their previous level of 18% and 28%. That is likely to trigger some selling of assets to lock in lower CGT rates before any change occurs.

Investors may also look more at types of investments where CGT is not incurred on every transaction, such as unit trusts and open-ended investment companies (OEIC).

Potential controls to prevent capital leaving the UK

Anecdotally, we hear that HNW and UHNW individuals might have already started to shift some of their assets to banks in Europe in recent times. If talk of capital controls increases, that would certainly accelerate.

Of course, we should not forget the Chancellor made it clear that he would have to return with a different tax-raising Budget in the Spring in the event of a no-deal Brexit.

About the author

Geoffrey Todd is partner in the private wealth team at Boodle Hatfield

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