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Taxing Times Ahead: Labour’s Proposals and Implications for High-Net-Worth Individuals

Taxing Times Ahead: Labour’s Proposals and Implications for High-Net-Worth Individuals
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At Traditum, we are committed to providing our high-net-worth clients with insightful and informed perspectives on the ever-changing financial landscape. The latest opinion polls suggest Labour has a clear lead and may win the next general election. The consensus among experts is that the election will occur in either the autumn of 2024 or possibly as late as January 2025. The potential for a Labour win raises questions about possible tax changes they might implement.

Keir Starmer, in a recent interview with Laura Kuenssberg (16/7/2023), refrained from delving into tax policy statements, citing the forthcoming Autumn Statement and Spring Budget before the election as preventing him. What are other Labour politicians’ stances on the matter?

In an interview for “The New Statesman” (7/6/2023), Rachel Reeves, the Shadow Chancellor, ruled out the introduction of an annual wealth tax, raising income tax and equalising capital gains tax rates and income tax rates. However, it’s important to recognise that 18 months in politics and economic recovery is a long time, as Liz Truss discovered in shorter order.

So what has Labour not publicly ruled out yet? The privatisation of the railways and the abolition of non-UK domiciled (“non-Dom“) tax status are two. If the latter were to be abolished, Labour estimates that it could generate over £3 billion by removing the tax advantages currently benefiting UK residents who were generally born overseas, with many of them residing in London. This money would be used by Labour to fund some of their planned spending initiatives. According to HMRC, there are around 68,000 individuals living in the UK who have this status.

Then there are private schools. Labour proposes adding a 20% VAT charge at the current standard rate to their tuition fees and potentially amending their charitable status, which would mean those schools lose other associated benefits. While this move may lead to additional costs for the schools due to the potential loss of their charitable status, there could be some recovery through input VAT on their supplies. However, the most affected parties would undoubtedly be the parents, who would have to bear the burden of meeting the extra 20% due to the increase in their children’s fees.

What else might Labour introduce if elected? Well, in 2017, just before the last general election, they published a document entitled “Tax Transparency, and Enforcement Programme.” That programme contains more than 20 proposals, including the proposal to create a public register of all UK trusts. Currently, UK trustees of certain trusts must register with HMRC details of trustees and beneficiaries, but this is not a public register of all trusts as Labour proposes. Individuals utilising trusts for legitimate estate planning purposes might be concerned about the loss of privacy and possible exposure of sensitive family financial information. Many might be worried about the safety of publicly named beneficiaries.

Another proposal in the document would ensure that the tax returns of all wealthy individuals earning over £1 million be publicly available to increase tax transparency and combat tax evasion. It is interesting that both Rishi Sunak and Keir Starmer have recently published their own tax returns.

To combat tax evasion, the document proposes a more stringent General Anti-Avoidance Rule (“GAAR“) and bolstering the HMRC Investigative Unit. They argue that the current GAAR, introduced in 2013 by the then Tory-Liberal Democrat Coalition Government, despite a number of amendments, is “inadequate as it does not challenge the abuses already established”.

What about the most recent Conservative legislative change announced by Jeremy Hunt, which abolished the lifetime allowance (“LTA”) cap of around £1 million on the size of individuals’ accumulated pension schemes? These changes were introduced, in part, to support NHS doctors, as many well-paid professionals were seen to be leaving the NHS when their pension savings reached this threshold.

On withdrawal of sums above the threshold, significant tax charges arose. Keir Starmer conceded, “We needed a fix for doctors, but the announcement today is a huge giveaway to some of the very wealthiest”. He went on to say a week later that he would include his pension from his tenure as Director of Public Prosecutions when reversing the legislation. During the parliamentary debate of the legislation, Labour seemed to signal a restructuring rather than a complete reversal, with doctors being exempt. However, the pension industry has called for clarification, but none has been provided thus far.

Nevertheless, on the 18th July 2023, the Conservative Government issued a revised consultation document by the Treasury that outlines further proposed pension changes. Since 2015, individuals inheriting a defined contribution pension pot from someone who passed away before the age of 75, have been able to benefit from a tax-free lump sum and make regular withdrawals while keeping funds invested without incurring any taxes. As per the proposal, starting from April next year, such beneficiaries will now be subject to income tax on ongoing withdrawals made from inherited pension pots. So, it seems tax changes on pensions may be coming from both main political parties. Again, the pension industry has called for clarification of the proposals and draft legislation is awaited.

As Benjamin Franklin said, “In this world, nothing can be said to be certain, except death and taxes.” It would be good to have some certainty in the taxation measures to come, but it seems we are several months away from that.’

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