Britain’s richest households made rapid and far-reaching changes to their finances ahead of the general election, fearing a tax onslaught from Labour, ranging from capital gains tax hikes and the end of generous pension benefits to an attack on families’ precious inheritances.
Tax advisers and wealth managers who work with some of the wealthiest households tell The Mail on Sunday exactly what the experts do behind the scenes.
Sell your shares to prevent your capital gains from falling
Wealthy individuals have been selling their share investments in recent weeks amid concerns that Labour wants to use capital gains tax to raise money.
In the run-up to the election, Finance Minister Rachel Reeves said her party had no current plans to increase CGT. However, she did not rule out raising the level during the full term of a Labour government.
Chris Shepard, partner at asset manager Evelyn Partners, says non-residential property tax rates have been stable for some time and could be seen as modest by Labour.
‘Most people I speak to accept that there is a good chance that CGT rates will go up and we can assume that they will probably go up. When that will be, we don’t know, but individuals may not have the luxury of waiting for it to be announced,’ he says.
This is because historically, changes to CGT rates have been implemented mid-year, meaning the reform could come into effect immediately. Shepard says: ‘I already have a number of clients who had decided to sell their assets before the election.
“Some clients who had invested in shares of the Magnificent Seven American Stocks, for example, and had seen significant returns over the past few years, are now saying that it’s a good time to pull the money out of those stocks and cash in the gains. Instead, they’re keeping the money in cash for a while.”
The Magnificent Seven is the nickname investors often use to describe a group of high-performing technology stocks: Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla.
Act now to get the most out of real estate
While stock market investments can be sold quickly, this is not the case for real estate assets.
However, this means that some wealthy families are taking urgent action and putting their properties up for sale in the hope of profiting from the rent before Labour can implement changes to the current CGT rules.
Shepard says: ‘A number of people I know who have invested in more than one property, either as a holiday home or to let, have made arrangements to sell them.’
Labour has indicated that there will be more pressure on landlords than there has been to date. ‘That’s why a number of people have decided to sell their property investments,’ adds Shepard. ‘The regulatory burden on landlords is so great that people are saying they don’t want to be part of it any more.
‘In general, tax rates are unlikely to go down and so there is no point in delaying if a client is considering an event that will result in a tax burden. But the tax tail should not wag the dog.’
Pay tuition fees early to avoid VAT charges
Grandparents who pay their grandchildren’s school fees are doing so by making advance payments for future school years in a desperate bid to temper Labour’s VAT plans.
Sir Keir Starmer plans to impose VAT on private school fees, adding an extra 20 per cent to the total bill for thousands of parents and grandparents.
According to Shepard, some grandparents have already made one-off payments to schools to avoid the VAT increase.
However, he advises caution in this regard, as any changes may be made retroactively, in which case it may not make sense to pay early.
Michelle Holgate, financial planning director at RBC Brewin Dolphin, says a number of her clients have also asked if she could repay early.
“We have had an increase in requests from grandparents who want to partially or fully fund school fees to help their children. For some, this is in addition to helping with home purchases and other requirements.”
Leave the UK and live a life as a non-dominant
Wealthy households are also fleeing Britain over fears of Starmer’s tax raids, experts warn.
Jason Porter of Blevins Franks, a financial advisory firm specialising in cross-border wealth management, says there was a flood of calls ahead of the election from families planning to move outside the UK.
He said: ‘We certainly had a lot of people coming to us with big concerns about changes to CGT and inheritance tax and what their situation might look like in the near future if they stayed. In most cases they were people in the middle class of wealth, with a few million pounds, for whom it might take time to move their wealth.
‘Many are considering going to Cyprus or Malta, which are very attractive from a CGT perspective and easier to get a visa for. They may not end up there, but they can go there for a few years and sell their assets.’
Shepard echoed this, claiming that ‘non-dom’ clients have said they are considering moving abroad because it is ‘the best way to avoid UK tax exposure’. The term non-dom refers to a person who lives in the UK but is not legally domiciled here, which can mean they retain tax benefits in their country of residence.
Robert Brodrick, private client partner at law firm Payne Hicks Beach, agrees that from a private wealth perspective, the spotlight is on the non-doms. And these people are leaving the country.
‘The only thing that advisers and clients hope for is some certainty. Because since the Conservatives announced their intention to abolish ‘non-dom’ status, which Labour has promised to do, international clients have been left in a vacuum. They are having to make decisions without knowing whether the announced changes will actually come into effect.’
Non-doms who contribute significantly to the economy will ‘definitely’ move to Italy, says Brodrick. ‘It’s not the fact that they have to pay more tax that makes people leave, it’s the uncertainty that makes it impossible to plan. Once they’ve left, they’re unlikely to come back until they know it’s safe.’
Strengthen your pension while you still can
In a key manifesto pledge, Labour promised to deliver pension reforms, sparking fears among many that the new government could limit the amount you can put into your pension each year.
Currently, you can pay a maximum of £60,000 a year into your pension, known as the ‘annual allowance’.
Similarly, the amount of tax relief you receive for every £1 you pay into your pension can be reduced. Currently, you receive tax relief on any amount you pay into your pension at your marginal income tax rate. This means, for example, that a basic rate taxpayer receives 20 per cent tax relief on any amount that goes into their pension, a higher rate taxpayer receives 40 per cent and a top-up taxpayer receives 45 per cent.
Shepard says some wealthy clients are maximizing the amount they put into their pensions in case one of these changes comes into effect. “Some tell me they want to have all of their contributions paid early this tax year,” he says. This is to ensure they can maximize their current exemption but also receive the higher and additional tax rates while they are still employed.
Find ways to avoid an inheritance tax attack
Inheritances are an important battleground for wealthy individuals. They do everything they can to protect their assets from the tax authorities.
Speculation about impending change has prompted the wealthy to take preemptive action, Shepard says. “Families that own a trading company have given shares in the company to the younger generations in a trust. They make these inheritance gifts early so that they are tax-exempt, which makes them eligible for corporate inheritance tax credits.”
Nick Ritchie, senior director of wealth management at RBC Wealth Management, said: ‘Those who have decided that the new government will raise taxes, including increasing the scope of CGT and IHT, are accelerating the sale of assets by gifting them away or moving them.’
Have you made any changes to your finances ahead of Labour’s victory? Email jessica.beard@mailonsunday.co.uk
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