The possibility of a Corbyn government has created a
flurry of financial planning among perturbed HNWs, writes Annamaria Koerling
How do you solve a problem like Corbyn? I couldn’t resist adapting this Sound of Music refrain. While the nuns were confused by Maria, Jeremy Corbyn elicits another emotion altogether in Britain’s wealthy: anxiety.
On a daily basis we speak to private client advisers from all disciplines, and whether they are wealth managers, accountants, lawyers or property advisers, all confrm that this nervousness is widely felt by their clients. I have no particular insight on Labour policies other than what we have all read.
However, the omens do not seem to be good. There are all manner of frightening quotes from Corbyn which promise that a Labour government would squeeze the wealthy until their ‘pips squeaked’. The Labour manifesto is reflective of a broader trend in Europe and elsewhere. Just look at the rhetoric emerging from Germany, where the student movement is vociferously advocating taxing the rich not to fund spending, but to address the rising inequality between the haves and the have nots, even if the outcome is lower productivity and lower economic growth.
Although, perhaps reassuringly, Labour’s track record of implementing their most draconian policies once in power is not good, this time it may be prudent to make some contingency plans. So how do you solve a problem like Corbyn? A mini-survey among clients and client advisers threw up fairly consistent results. There are five main areas of concern and some steps you can take to reduce the impact.
The concern that tops our charts covers capital controls which apply an exit tax on cash and assets leaving the UK. The solution to this is simple but time-consuming. Guy Paterson of Stanhope Capital explained: ‘The hidden risk for most families is custody, which not everyone understands: moving this now is critical, because opening new custody accounts takes a lot longer than the minimum six weeks of a UK election period.’
Switzerland and Singapore are popular choices. Paterson highlighted ‘the risk of UK tax being imposed on the Crown dependencies’. Additionally, a wealth manager I spoke to said that as a first step, many clients have moved surplus cash out of sterling and to non-UK banks.
Second is the fear of an increase in income and capital gains tax rates for the higher-earners. Unlike our European cousins, in the UK we have few tax deductions. The consequence of this is that while the headline rate of taxation is higher in other European countries, the effective rate for the wealthy tends to be much lower. A head of a family office in Germany said that most of his families in Germany pay little to no inheritance tax and less than 20 per cent in other taxes. An increase in taxation tends to hit us hard. The only solution is to realise gains now at lower rates.
The third concern is over ‘global taxation by citizenship’, of which there is a lot of talk in Europe, particularly Germany and of course in the US, which already has this system. A Malta tax adviser I spoke to recently said his firm has seen an increased interest from UK citizens looking to take on Maltese citizenship; other popular passports are Cyprus, which like Malta helps also with Brexit planning. Outside the EU, destinations like Nevis have also seen increased interest from wealthy Brits.
Fourth: abolishing the UK resident non-domiciled regime. The good news for non-doms is that there is considerable competition for their capital across Europe and elsewhere. Popular choices for departing non-doms are Switzerland, Malta, Italy and even the USA. If you have a trust which needs to be tidied up, recent changes in Liechtenstein may help. For those who want to stay, they are stuck with the same tax deferral mechanisms us Brits have.
The fifth fear is of a wealth tax. In the countries where this operates, like France, this can often be offset by debt or reduced by sheltering assets in corporate structures or trusts. We have heard anecdotal evidence from property advisers that parents are buying houses for their children at an earlier stage, in order to mitigate for this risk.
Some individuals and families are considering relocating. Popular destinations include Portugal, Malta, Switzerland, the Channel Islands and even the US. There is a lot to be said for keeping things simple.
If there is something you would have done anyway (such as buying a house for your kids), it might make sense to bring it forward. If there are cost-free options, like moving your banking or the custody to a different jurisdiction, it is worth considering. Bear in mind that this process is time-consuming and unlikely to be painless. If you can stomach the idea, you may find it brings unexpected benefits.
Some of our clients who have done this have found they have reduced their costs without compromising on service or outcomes. That really is a no-brainer.
Annamaria Koerling is a partner at Owl Private Office
This article first appeared in issue 69 of Spear’s magazine, available on newsstands now. Click here to buy and subscribe.