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The Rose Garden speech

The Prime Minister delivered a speech from the Rose Garden at Downing Street on 27 August, but the content was anything but rosy. Sir Keir Starmer painted a depressing picture of the state of the country's economy, referring to financial 'black holes', as he braced the UK for a difficult Autumn Budget on 30 October. 'Those with the widest shoulders should bear the heaviest burden,' the PM said, a signal that wealthier homes would face the brunt of incoming tax hikes.

Subsequently he has commented that 'This is actually a project of hope,' despite warning that the upcoming autumn budget will be 'painful'. 'But it's got to start with the hard yards of doing the difficult stuff, of clearing out the rot first.'

It is apparent that the speech has worried a number of wealthy people and there are several reports in the national newspapers that entrepreneurs continue to leave the UK ahead of expected rises to Capital Gains Tax and Inheritance Tax in the Budget.

Finance experts have reported that high-net-worth families are packing their bags in a bid to protect their hard-earned assets – and some have already made the move.

There are mounting fears that Labour is planning a slew of tax increases on pensions, property and investments.

'Those with the widest shoulders should bear the heaviest burden,' the PM said in his address from the Downing Street rose garden, a signal that wealthier homes would face the brunt of incoming tax hikes.

The main taxes that are rumoured to be targeted are:

• Capital Gains Tax (CGT)
• Inheritance Tax (IHT)
• Pension Tax
• Savings Tax
• Council Tax
• Fuel Duty

CGT

Much has been written about an increase in CGT to such an extent that an increase seems inevitable. The Office for Budget Responsibility expects CGT to raise £15bn this tax year but it certainly does not follow that increasing the current relatively low rates will lead to anything like a proportionate increase in the tax take. In fact, it is even reported that HMRC’s own calculations suggest that an increase in the higher rate from 20% to 30% could lead to a £400m fall in the tax take in 2025/26 followed by a £985m drop in 2026/27.

The reason for this is that behaviour will change if the tax increases. A sale can be postponed or advanced if advance notice of a change is sign posted. In fact, the intention may be to announce an increase from next April in the hope that this will initiate sales between October and 5 April 2025 thus swelling the Treasury coffers in the meantime.

In the meantime, it is reported that buy to let landlords are selling to beat any tax increase.

IHT

The government have made no secret of the fact that they see this as a tax paid by the rich as it only affects around 5% of the population. There could be an increase in the 40% rate but more likely is a restriction on gifts or reducing the assets that qualify for business relief.

Pension Tax

Currently pension contributions to an authorised pension scheme are allowable at the contributor’s marginal rate of income tax, so a basic rate taxpayer receives relief at 20%, a higher rate taxpayer at 40% and an additional ratepayer at 45%. The cost of pension tax relief is considerable and there have been calls to put a cap on the rate of relief available maybe at 20% or 30%. There are of course now a considerable number of 40% taxpayers so any restriction could be widely unpopular. Governments normally seek to encourage pension savings, and this would do the opposite.

The other issue is that those in a final salary scheme who are not basic rate taxpayers would be liable to tax on a benefit in kind on the employer’s contribution. Final salary scheme is really only prevalent now in the public sector which the government may choose not to annoy.

Savings Tax

Another potential target is Individual Savings Accounts (ISAs) which allow people to save up to £20,000 a year in shares or cash, which are tax-free for gains and withdrawals.

While the relatively generous annual amount (£20,000) that you can save is not expected to be varied, there are suggestions that the Government could impose a lifetime cap.

The Resolution Foundation think tank previously said this could be set at £100,000, suggesting the current setup mainly benefits those with high disposable income.

Council Tax

The council tax that households pay is based on the value of their property relative to others in England on April 1st, 1991.

Since this one and only valuation of houses, values have increased by massively different amounts around the country. The IFS comment that households in the North and Midlands are often in too high a band – and pay too much – while those in London and its environs too low a band – and pay too little – compared to what they would under a modernised tax. In other words, in its current form council tax works against levelling up.

Fuel Duty

A 5p per litre cut in fuel duty was introduced by the Conservative government in March 2022 while, before this, the levy had been frozen at 57.95p since March 2011. It looks inevitable that the 5p cut will be reversed at the very least. The previous labour government increased fuel duty by inflation but constant hikes were very unpopular.

Summary

It seems inevitable that those with considerable wealth will leave the UK in addition to those who were to leave the country as a result of the non-UK domiciled changes. Of course, all we have at the moment is speculation and no doubt a considerable number of wealthy people will be taking some steps but wait until the Budget to decide future intentions. Bringing forward a sale of assets seems sensible but altering wills and making irrevocable or expensive changes in advance of the Budget may not be sensible.