Here’s what HNWs need to know about the 2020 budget with a special report from Arun Kakar, who gauges reaction in the private client world
A confident Rishi Sunak hailed the Tories as the ‘real workers party’ as he delivered a budget promising the largest fiscal boost to the UK economy in 30 years. By the same token the chancellor also appeared to produce a budget that was ‘sigh of relief’ for HNWs – a pretty impressive balancing act.
As well as a £30 billion stimulus package to help prepare Britain and the economy for the impact of COVID-19, Sunak – who has been in the job for just 27 days – announced some £600 billion of capital investment in a raft of ‘bold and brave’ commitments.
‘Our public finances are strong,’ Sunak told MPs, as he announced the series of pledges – with seemingly few tax measures to mop up the additional spending. ‘Public net investment will be the highest it’s been since 1955.’
The budget reflects a rise in GDP borrowing from 2.1 per cent this year to 2.4 per cent, rising further to 2.8 per cent in the following two years. This is set to fall to 2.5 per cent the year after. Inflation is forecast at 1.4 per cent this year and is set to increase to 1.8 per cent in 2021-2022.
Sunak stated that the OBR expected growth to be 0.5 per cent higher thanks to the announced extra spending. The fiscal watchdog is also expecting a 2.5 per cent productivity boost over the longer term if these announcements are stuck to, offering good news for the wider economy stuck in the doldrums of flat-lining productivity growth over the last decade.
While the government is set to borrow £146 billion more this year than previously forecast (some 2.1 per cent of GDP), debt as a proportion of GDP is forecast to be lower at the end of the current parliament.
A budget surplus is expected annually for the next three years, and the deficit is now down to less than 2 per cent of GDP.
Stamp duty a stickler
Among tax rises, Sunak announced the introduction of a 2 per cent stamp duty surcharge for UK non-residents when buying residential property, which will take place next year. Property advisers remain unhappy about this, but as Liam Bailey, head of research at Knight Frank tells Spear’s: ‘This change will bring the UK into line with many other global property markets which have seen the introduction of similar taxes targeting overseas buyers. The new measure will need to be monitored carefully to ensure there are no unintended consequences, in particular to the delivery of new-build development – which in some cases benefits from forward funding from international investors.’
Chris Groves, a partner at Withers speculated: ‘Agents will hope that this leads to a short term surge in foreign buyers seeking to complete purchases before the new rate kicks in.’
Trevor Abrahmsohn, managing director of Glentree International was less impressed, decrying that the new rates are ‘draconian’ and will ‘inevitably deter wealth creators buying property in the UK and investing here’.
The widely trailed non-reduction in corporate tax also went ahead, netting the government £9 billion a year.
Sunak serious about levelling up
Aside from tackling the new coronavirus, the heart of the budget fixed on the government’s pledge to invest more than £600 billion in ‘future prosperity’ for regions across the country, with notable boosts in rail, broadband and housing.
The Treasury green book will be reviewed and a new ‘economic campus’ will be launched in the North, encompassing more than 750 staff from the Treasury, department for business, local government and trade. Funding boosts of £640 million for Scotland, £360 million for Wales, and £210 million for Northern Ireland were also announced.
Sunak also announced a £640 million ‘nature for climate fund’ and £800 million to invest in carbon capture and storage – creating two or more carbon capture and storage clusters by 2030, a move expected to create up to 6,000 jobs. A plastic packaging tax is set to come in by 2022, red diesel subsidies will be scrapped in two years’ time for ‘most sectors’, and some £5.2 billion is set to be invested in flood defences over the next five years.
‘This government intends to be the first in history to leave our natural environment in a better state than we found it,’ Sunak told the chamber.
In a rare controversial announcement, Sunak limited entrepreneur’s relief to firms selling their business to £1 million over a lifetime, increasing the amount of tax paid by businesses sold at a profit of more than £1 million, down from £10 million. The only silver lining here was that many had expected the relief to be scrapped altogether.
‘Initial indications are that there are anti-forestalling rules which means that a lot of planning undertaken to get around this anticipated change will be ineffective,’ warned Michael Lewis, director at Frank Hirth. ‘There is a question whether this potential retrospective taxation rule is actually constitutional.’
Sunak also announced extra funding for HMRC to counter tax avoidance and evasion, although details were not outlined in today’s speech. Owl Private Office partner and Spear’s columnist Annamaria Koerling cautioned that the funding boost to HMRC raised concerns about a ‘potential witch hunt’ and noted the ‘irritation of dealing with an increased volume of enquiries which can be costly and emotionally draining’. But she gave the budget and its ‘fiscal boost’ a broad thumbs up, adding: ‘The compliant, UK resident wealthy taxpayers in the UK have emerged largely unscathed.’
James Quarmby, partner at Stephenson Harwood echoed Koerling’s concerns.
‘I am worried that the government will go too far and start attacking advisers who give more mundane tax advice,’ he told Spear’s. But he noted that the government’s pledge to raise standards in the market for tax advice would ‘probably involve legislation to ensure that all tax advisers are regulated by one of the existing bodies’.
‘If this is the case then it is a measure I would wholeheartedly – and rather obviously – support,’ he added.
Indeed UHNWs would be breathing a ‘sigh of relief’ at today’s announcements, according to Koerling. ‘There a respite – albeit a temporary one – from further tax increases,’ she added.
Notwithstanding reservations about stamp duty, Sunak’s efforts were welcomed elsewhere in the private client world. Chris Groves, a partner at Withers, said: ‘In a budget that was always going to be overshadowed by the coronavirus, spending and investment had long been trailed as the focus and Rishi Sunak did not fail to deliver.’