Wealth anxiety: are proposed changes to the tax regime a capital gain or a national loss?
The election of the new Labour government has led many commentators to express trepidation at possible changes to the tax regime, and the unintended consequences this might have on the wealthiest in society.
An increase in the rate of Capital Gains Tax (CGT) is widely expected, the stated rationale being to place the burden of tax rises on the 'broadest shoulders'. However, a recent leader in the Financial Times has warned against the pitfalls of raising the rates of CGT, arguing that 'taxes should raise revenue while minimising distortionary behaviours', and that raising taxes on capital can 'punish genuine risk takers' or even result in the wealthiest leaving the jurisdiction to lower tax locations.
Another widely expected reform is the abolition of Agricultural Property Relief and/or Business Property Relief. These are valuable reliefs for individuals but also have the wider benefit of promoting UK business investment and farming.
Commentators have suggested that reforms such as these will simply scare the rich into moving away from Britain and would be a disaster for the economy.
It is undoubtedly true that many are fearful of the implications of the anticipated reforms for their hard-earned wealth. However, others take the view that they do not object to paying their fair share, whilst still ensuring that which remains theirs passes to the next generation.
Another article from the FT quotes from a study of UHNW individuals by the London School of Economics which noted that 'the vast majority of interviewees were clear that they would never consider moving for tax reasons', citing for example the potential boredom of life in a tax haven. Billionaire John Caudwell, founder of Phones4U, commented: 'An increase in taxes would not make me leave the country unless that increase was extreme and unjustified. If we are talking hypothetically about, say, five percentage points on the higher rate tax band, why would anyone leave for that reason? If so, they would most probably have already done so.'
The article makes the point that a decision to emigrate is frequently not purely tax-driven but also influenced by other factors such as dislike of the prevailing political regime or individuals. Indeed, Caudwell admits that he considered leaving the UK when Jeremy Corbyn was contesting the 2019 General Election.
Fairness is often a prevailing consideration. Having a trusted advisor to guide you through the UK's often highly complex tax regime can be invaluable to help individuals and families maximise the use of available opportunities to preserve assets for the next generation. Careful planning can help to soften the impact of tax reforms and may (contrary to the expectations of the more Cassandra-esque of the commentators) lead taxpayers to reconsider the need to take the drastic step of packing up and heading out.