How the rich are shielding their money from Labour: Tax advisers reveal six ways you can do the same
Britain's wealthiest households rushed to make swift but sweeping changes to their finances before the General Election, fearing the spectre of a Labour tax raid, from hikes to capital gains tax and the end of generous pension allowances to an attack on families’ precious inheritances.
Tax advisers and wealth managers who work with some of the richest households tell The Mail on Sunday exactly what those in the know have been doing behind the scenes.
Investors with large profits on shares have already seen a Tory capital gains tax raid and now fear higher rates under Labour
Sell up your shares to avoid capital gains hit
Wealthy individuals have been selling off investments in shares in recent weeks, amid concerns that Labour will target capital gains tax to raise funding.
In the lead-up to the election, Chancellor Rachel Reeves said her party had no current plans to raise CGT, but she would not rule out increasing the level during a Labour government’s full term.
Chris Shepard, partner at wealth management firm Evelyn Partners, says the tax rates on non-residential property have been stable for some time and could be viewed as modest by Labour.
‘Most people I speak to accept there is a strong likelihood that CGT rates will go up and we can assume that they will probably increase. When that will be we don’t know, but individuals may not have the luxury of waiting until it is announced,’ he says.
This is because, historically, changes to CGT rates have been brought in mid-year, which means reform could be effective immediately. Shepard says: ‘I already have a number of clients who, before the election, had decided to sell their assets.
‘For example, some clients who had invested in shares in the Magnificent Seven American stocks and made significant returns in recent years are now saying it’s an appropriate time to take the money out of those stocks and cash in the gains. Instead, they will hold the money in cash for a while.’
The Magnificent Seven is the nickname commonly used among investors to describe a group of high-performing tech stocks: Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla.
Act now to make most profit from property
While investments in the stock market may be quick to offload, the same cannot be said of property assets.
However, this means some wealthy families are taking urgent action to put properties up for sale in the hope that they can realise the gains before Labour can make changes to the current CGT rules.
Shepard says: ‘A number of people I know who have had investments in more than one property, either as a holiday home or buy to let, have put in place arrangements for them to be sold.’
The Labour party has indicated there would be greater pressure on landlords than there has been so far. ‘For this reason, a number of people have made the decision to sell their property investments,’ Shepard adds. ‘The regulatory burden that is going to be placed on landlords is such that people are saying they don’t want to be part of it any more.
‘Broadly, tax rates are not likely to come down and therefore if a client is considering an event that will result in a tax burden, there is no point in delaying. But the tax tail should not wag the dog.’
Pay school fees early to avoid VAT charge
Grandparents who pay for their grandchildren’s private school fees are making payments for future terms ahead of time in a desperate bid to mitigate Labour’s VAT plans.
Sir Keir Starmer plans to start charging VAT on private school fees, adding 20 per cent to the total bill for thousands of parents and grandparents.
Shepard says a number of grandparents have already been making lump sum payments to schools to get around the VAT increase.
However, he advises caution on this as any changes could be backdated, so the efforts to pay early may not make a difference.
Michelle Holgate, a financial planning director RBC Brewin Dolphin, says that a number of her clients have also been asking about making early payments.
‘We have had an increase in requests from grandparents looking to part-fund or fully fund school fees to help their children. For some this is in addition to having helped with house purchases and other requirements.’
Leave the uk and take up the non-dom life
Wealthy households are also fleeing Britain over fears about Starmer’s tax raids, experts warn.
Jason Porter, of Blevins Franks, a financial advice firm specialising in cross-border wealth management, says there was an influx of calls from families planning to relocate outside of the UK ahead of the election.
He says: ‘There were certainly a lot of people coming to us with big concerns over changes to CGT and inheritance tax and what their situation could soon be like if they stayed. In most cases they were people in the middle bracket of wealth, with a couple of million pounds, for whom it can take time to move their assets.
‘Many are looking at going to Cyprus or Malta, which are very attractive from a CGT perspective and are easier to get visas for. That’s not where they might end up but they can go there for a few years and sell their assets.’
Shepard echoed this, claiming ‘non-dom’ clients have said they are looking at moving abroad because it’s ‘the best way for them not to be exposed to UK taxation’. The term non-dom refers to a person who lives in the UK but is not legally domiciled here, which can mean they keep tax advantages 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 have been leaving the country.
‘The one thing advisers and clients alike are all hoping for is some certainty, because ever since the Conservatives announced their intention to abolish ‘non-dom’ status, which Labour has pledged to follow, international clients have been left in a vacuum, trying to make decisions without knowing whether the changes that have been announced will become law.’
Non-doms who contribute vast amounts to the economy are ‘definitely’ moving to Italy, Brodrick says. ‘It’s not the fact that they are going to have to pay more tax that is making people leave, it’s the uncertainty which makes it impossible to plan. Once they have left, they are unlikely to come back until they know that it is safe.’
Beef up your pension while you still can
In a key pledge in its manifesto, Labour promised to make pension reforms. This has awakened fears among many that the new Government could begin to limit the amount of money you can put into your pension each year.
Currently, you can pay up to £60,000 into a pension each year, known as the ‘annual allowance’.
Similarly, the amount of tax relief you receive for every £1 you put into your pension could be cut back. Currently, you receive tax relief on any money you contribute at your marginal rate of income tax. This means, for example, that a basic-rate taxpayer receives 20 per cent tax relief on any money that goes into their pension, a higher rate taxpayer receives 40 per cent and an additional rate taxpayer 45 per cent.
Shepard says some wealthy clients have been maximising the amount they are putting into their pensions in case any of these changes are made. ‘Some are saying to me they want to get all their contributions paid early this tax year,’ he says. This is to ensure that they can maximise their current allowance but also receive the higher and additional rates of tax relief while they are still in place.
Find ways to avoid any inheritance tax raid
Inheritance is a key battleground for wealthy individuals, who go to great lengths to shield their assets from the taxman.
Speculation about looming changes has spurred the rich into preventative action, Shepard says. ‘Families that own a trading company have been gifting shares in the company to the younger generations into a trust. They are making these inheritance gifts early so that they are exempt from tax, where they qualify for business relief for inheritance tax.’
Nick Ritchie, senior director of wealth planning at RBC Wealth Management, says: ‘Those who have decided the new Government will raise taxes, including increasing the scope of CGT and IHT, are accelerating the disposal of assets, gifting or relocating already.’
Did you make changes to your finances ahead of Labour’s victory? Email [email protected]
