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HNWs' top six fears in the event of a Corbyn government

While the current political focus is on the Conservative party leadership race, the threat of a Jeremy Corbyn led-government still looms.

Geoffrey Todd, partner at Boodle Hatfield, has outlined high net worths’ (HNWs) six key concerns in the event of Corbyn becoming Prime Minister.

1. Removal of IHT reliefs

Labour has announced its plans to lower the inheritance tax (IHT) free allowance to £125,000. Any amount over this would be taxed annually at the same rate as income tax.

Additionally, he is expected to target Agricultural Property Relief and Business Property Relief, which can both grant 100 percent IHT relief in order to prevent the break-up of farms and family businesses on death.

2. Nationalisation of utilities and other major businesses

The Labour leadership have outlined their commitment to renationalise electricity, gas, water and railway operators.

Mr Todd explained: “Investors may start looking to diversify their portfolios further away from sectors like utilities, to avoid the losses renationalisation could cause – especially if the government only pays book value rather than market value, as has been suggested recently.”

3. Introduction of a Land Value Tax & higher taxes on buy-to-let portfolios

Shadow Chancellor John McDonnell has hinted at the possibility of introducing a Land Value Tax to replace Business Rates and Council Tax.

This would likely increase tax bills markedly for major landowners, and make buying new assets less attractive for property investors.

However, Mr Todd said ultimately that “if a billionaire has chosen to buy a farm or large estate because it is their passion, an additional tax is unlikely to dissuade them.”

In addition to a new Land Value Tax, a recently published “Land for the Many” report commissioned by Labour, suggested placing a cap on annual rent increases and increasing capital gains tax for investment properties.

4. A 50 percent income tax rate

In the Labour party’s 2017 manifesto, the party committed to re-introducing the 50 percent income tax rate. This would equate to an extra £2,700 annually in income tax in the £123,000- £150,000 band.

“If this happened, we could expect to a return to some of the same strategies investors employed the last time a 50 percent rate was in place,” Mr Todd warned.

“Longer term investors may shift their focus from investing for income to investing for capital growth. This allows you to defer the gain and the tax charge until there is a change to more investor-friendly tax policies under a future government,” he added.

5. Capital Gains Tax rates rising

Since April 2016 investors have benefited from CGT at a 10 percent basic rate and a 20 percent higher rate, with an eight percent surcharge on non-main residence property.

Labour has said it would return the rates to their previous level of 18 percent and 28 percent, which is likely to trigger some selling of assets to lock in lower CGT rates before any change occurs.”

6. Potential controls to prevent capital leaving the UK

“Anecdotally, one hears 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,” Mr Todd said.

This article first appeared in EPrivateClient on 24 June 2019. Find out more about our Private Wealth services.

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