Expert Comment on Osborne’s Speech at the Tory Party Conference: What Does it Mean for the Wealthy?

We’re collecting expert comment on chancellor George Osborne’s speech at the Tory Party Conference in Birmingham today and its implications for the wealthy

We’re collecting expert comment on chancellor George Osborne’s speech at the Tory Party Conference in Birmingham today and its implications for the wealthy

Camilla Wallace, private client partner at law firm Wedlake Bell

‘The smart Private Client advice would be to avoid aggressive tax planning schemes, and if any advice even remotely appears to be too good to be true then steer clear.’

Geraint Jones, private client partner with London accountants Reeves

George Osborne intends to raise taxes on the wealthiest, he promised the Conservative Party conference in Birmingham today. What should you do as one of them? It is certainly not easy to see exactly what might be in his sights, but there are some targets that might tempt him.

He has already ruled out a mansion tax, stamp duty land tax has already been raised, and offshore wrappers will shortly be liable for tax where they hold UK property. In addition the impending reduction in the top rate of income tax from 50% to 45% indicates that a rise in income tax rates is not likely. And what of capital gains tax? Well capital gains tax does not raise much revenue and exists primarily to block income into capital schemes so it is unlikely that the Chancellor will be able to raise much tax there. So where does that leave us?

National insurance has traditionally been an area favoured for stealth taxes. The highest earners currently only pay at a marginal rate of 2% whereas middle earners pay at 12%. Perhaps everyone could pay at 12% on all their earnings. That would undoubtedly raise not only a lot of money but also howls of protest. It would also not touch the truly wealthy who do not need to work for a living. Alternatively maybe national insurance could be extended to cover all forms of income and not just earnings.

An approach much favoured in America but rarely used here would be to introduce a one off income tax hit. So for say one year everyone above a certain income threshold pays an additional sum of tax. While this will not solve the systemic problem in the economy it will allow the Chancellor an additional year in which to sort out the economy.

Many countries have a wealth tax whereby total net assets above a certain level are subject to an annual tax. This of course taxes assets and not income and the two are not necessarily connected.

Another area that has not been seriously reviewed by any Government for many years is inheritance tax. As the vast majority of Estates in the UK do not pay inheritance tax any raise will not affect most people however it would take a long time for it to have any tangible effect on the country’s finances.

So what should the well advised person be doing?

Firstly, as usual, if you are non domiciled then planning is likely to be a lot easier for you. As we do not know what is going to happen you should keep yourself as flexible as possible. Not just financially but also geographically. You may need to take a much deserved break in the Caribbean or take an extended visit to see your children for a few years.

You will need to be able to move quickly and you may need to increase or reduce your income quickly. If you believe that national insurance rates (or income tax rates) rates are going to rise then it would be sensible to accelerate the receipt of income so it falls into say 2013/14 where we have been already been promised a top rate of tax of 45%. However if an increase in national insurance is announced you need to be able to reduce you income quickly.

You can also delay tax reliefs such as pension contributions and gift aid until income tax rates are high though this will not necessarily help you if there is a national insurance increase in place.

Keith Johnston, Director of Private Wealth Comms:

‘Osborne’s empty pro-wealth rhetoric can’t hide fact that there is now a search on for new taxes on the rich. This will make for good politics but bad economics. It’s good politics because the Conservatives must shake the persistent image that they are the party of the wealthy. It’s bad economics because we need wealth creators to bring growth to the economy.

Asking the rich to pay their ‘fair share’ is pretty meaningless when the highest-earning 1 per cent of Britons already pay 27 per cent of all income taxes. We need the rich to believe that Britain is open-for-business, not least because the wealth management industry employs an estimated 124,000 people servicing these wealthy.

Nevertheless, after the unpopular move to reduce the top rate of income tax to 45 per cent and Andrew Mitchell’s pleb outburst the Conservatives have felt forced to do this to distance themselves from their aristocratic image problems.

This latest move should be seen in the context of the views of Neil O’Brien, head of the influential think-tank Policy Exchange, who appealed last week to David Cameron to “urgently” launch a “new round of renewal” including changing the party’s image as “the party of the rich”. The party also needed to give concessions to the Lib Dems as they launch a new round of benefits cuts.’

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