This story on Labour policy will be updated throughout the day. If you are an (U)HNW adviser and would like to share your thoughts, please email rory.sachs@spearswms.com
Labour’s general election victory means Sir Keir Starmer’s touted pledges might soon become government policy. But what does it mean for (U)HNWs?
[See also: Politicians have no solutions to Brexit Britain’s problems]
Trusted advisers across the fields of law, property, tax, and trusts have spoken to Spear’s in the wake of the landslide election victory to share how the non-dom regime, private school fees, inheritance tax, and more might soon be shaped by the new government, and how this will impact high-net-worth and ultra-high-net-worth clients.
The timing of any policy changes remains to be seen. While the clear majority won by Labour gives the party a clear mandate, which could encourage bolder action, other commentators speculate that the party might begin with a ‘slow and steady’ approach before ramping up their policy changes further into the government.
[See also: Privately furious: Top independent schools braced for Labour’s VAT grab on fees]
Policies like abolishing the non-dom regime and levying VAT on private school fees have made headlines, but there is also the possibility that the new prime minister has more radical policies in his back pocket.
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Writing in the latest issue of Spear’s, columnist Matthew Goodwin claims Sir Keir Starmer might be a more radical leader than he appeared on the campaign trail. ‘Remember, if Keir Starmer is the next prime minister Britain will be led by somebody who not once but twice told us all to put Jeremy Corbyn into power,’ he wrote in a piece published ahead of last night’s vote. ‘Starmer, put simply, is more radical than many people think, and I suspect in time that radicalism, especially if he wins a big majority, will soon become visible to everybody else.’
The future of the non-dom regime
Internationally-mobile UHNWs have long taken advantage of the non-domiciled status, which allows them to pay no tax on their foreign earnings as long as these are not brought into the UK. While the Treasury under Jeremy Hunt has already announced a new residency-based scheme to replace the rules, many advisers in the Spear’s network believe the new Labour government will go further.
The party has said its plans to scrap the regime could raise £5.23 billion, but many believe the UK will lose its reputation as a hub for global UHNWs and wealth creators.
‘For those of us with boots on the ground we are already dealing with queries around how and when to leave if the non-dom proposals come in as presently promulgated,’ notes Helen McGhee, a Spear’s Top Recommended tax lawyer and partner at Joseph Hage Aaronson LLP.
‘A four-year grace period upon arrival is not long enough in terms of making the UK a globally competitive jurisdiction for the wealthy internationally mobile, and moreover a raid on existing trust structures with little lead in time and a disturbingly long IHT tail will be the final straw for many. Any exodus will have a serious impact on the prosperity of the City which has already been hit hard with Brexit.’
Robert Brodrick, a leading tax adviser at Payne Hicks Beach, says that uncertainty over the timeframe for policy change has also been challenging for UHNWs.
‘International clients have been left in a “do-I, don’t-I” vacuum, trying to make decisions without knowing whether the changes that have been announced will actually become law, and if so, when this will happen,’ Brodrick tells Spear’s. ‘Will it be from 6 April 2025 [the new tax year], or will the changes be delayed so that a proper consultation can take place? These are all very real questions that are already having very real consequences.’
Given the policy confusion, many of Brodrick’s clients have been mulling over plans to leave in the final days of the campaign. ‘Earlier this week, I was speaking to someone whose family have been in the top 10 of the Sunday Times Rich List for many years. They are also non-domiciled. This is a family that contribute to the UK economy in a significant way and they are having to weigh up whether to stay or whether to go,’ he adds.
‘All their friends are leaving or have already left. In the early hours of this morning when the election result had become clear, I was contacted by another UHNW client (also non-domiciled) to confirm that he is definitely moving to Italy.’
VAT levy on private school fees
Sir Keir Starmer has pledged to levy VAT on private school fees, a 20 per cent hike which has attracted widespread debate from both sides of the political spectrum.
Supporters argue it is a vital way to raise money for frontline projects, while disgruntled opponents claim it will threaten the future of schools and could lead to a run on an already oversubscribed state school sector.
Labour claims the move will raise money for the public purse, citing figures from the Institute for Fiscal Studies (IFS) which estimates that the scheme would generate about £1.6 billion a year. However, the sums only work if there isn’t a mass withdrawal from the private school system.
In June 2023, research by educational think-tank EDSK found that if a quarter of pupils switched from private schools, the government might raise only a net £19 million. Private school enrolments have already dropped.
Speaking to Martin Vander Weyer for a feature published in the latest issue of Spear’s, Sir Anthony Seldon, a doyen of the sector as head of Epsom College and former head of Wellington and Brighton College, explained that a number of schools are at risk.
‘It would be quite wrong to think all independent schools can cope with VAT the way the likes of Eton and Harrow might be able to do so,’ he explained. ‘This will damage schools outside the South East, prep schools, niche schools and many other schools which don’t operate on significant margins.’
Katharine Arthur, head of private client at Haysmacintryre, tells Spear’s that while many schools have had to grapple with enquiries from parents over pre-paying fees, the election has also led to many queries around how to finance fees in the coming years. ‘Setting up a trust [and] putting some money in that to pay the school fees tax-efficiently, that’s an interesting discussion as well. People are problem solving from all sorts of different angles on that point.’
Inheritance tax and other Labour policies on the horizon
A huge question mark remains over the future of inheritance tax (IHT), which was conspicuously absent from the Conservative and Labour manifestos.
Gary Smith, partner in financial planning at wealth management firm Evelyn Partners, notes: ‘The sole mention of inheritance in Labour’s manifesto was that regarding the use of offshore trusts for non-doms – and the Tory manifesto did not include one instance of the word inheritance, although it did pledge to retain business and agricultural property reliefs.
‘However, Labour have previously made it clear they think some inheritance tax exemptions and allowances are too generous, so it’s possible some sort of measures will be taken to reduce them if they gain power.’
McGhee agrees IHT will likely be just one of a number of taxes targeted by the new government, adding: ‘There will undoubtedly be additional tinkering with CGT (scrap Principal Residence Relief?) and IHT (scrap BRP and APR?) and will a wealth tax in general be revived or are the administrative costs of that overly onerous?
‘It will also be interesting to see what the new government does around disclosure: HNWs very much value a right to privacy, which is being gradually eroded with no real discernible objective in many instances.’
The Autumn Statement will provide greater clarity for UHNWs on many of these issues, yet pre-emptive action will give clients more options when it comes to reviewing their tax affairs, says Charles Russell Speechlys’ Julia Cox. ‘We think UHNWs will be taking a serious look at their IHT exposure ahead of an autumn Budget. Many are eagerly waiting to hear when that Budget will actually be announced, but they would be wise to start planning with this in mind now.’
