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How Britain’s wealthiest savers are preparing for a Labour government

Labour Downing Street
Labour Downing Street

Have you taken action with your personal finances ahead of a Labour government? We want to hear from you, email money@telegraph.co.uk.

As the prospect of a Labour “forever government” looms large following last week’s election results, Britain’s most affluent savers and investors are busy making the most of tax reliefs while they still can.

Wealth managers – who handle more than £300bn of their customers’ cash – told Telegraph Money that their clients were worried that capital gains tax rates could be equalised to income tax bands, or that lucrative exemptions for inheritance tax could be scrapped.

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Another concern is that pension savings, which are currently exempt from death duties, could be made liable for inheritance tax, warned Alexandra Loydon of St James’s Place, Britain’s biggest wealth manager. There is also concern that Labour is considering an extra wealth tax as a way to raise revenue, such as a 2pc tax on the super-rich that has already been gaining traction overseas.

Some are considering joining the exodus of high-net worth individuals in quitting the UK entirely in a bid to guard their assets from a government that may feel emboldened by a “super majority” as the Tory vote collapses.

Labour has been drawing up plans for a series of wealth taxes, documents seen by The Guardian revealed earlier this week. Senior sources told the paper that the party needed to show voters that it was “serious about borrowing and raising revenues from taxes”.

Sir Keir Starmer has refused to rule out further tax grabs targeted at the wealthy, despite promising not to raise taxes on “working people” in his manifesto.

Labour has already strongly signalled its willingness to tax those with high earnings with a promised crackdown on a private equity loophole, which it says will raise £565m a year.

It has also announced that it will introduce a 20pc VAT rate on private school fees.

As a result, wealthy clients are rushing to make the most of their existing allowances while they last.

Jonathan Unwin, head of portfolio management for the UK at private bank Mirabaud, warned that any incoming government would likely have to raise tax revenues.

He said: “The fiscal situation is so tight now that it is likely that whoever gets in will have to raise revenues from somewhere.”

Mr Unwin said that many of his clients were also concerned about more drastic changes after an election “feel-good bounce”.

He said: “Things feel better, but actually, nothing is improving economically, and some hard decisions have to get made later on.”

James Gladstone head of wealth planning at Cazenove Capital, which caters to clients with at least £1m in liquid capital, said: “Clients are more concerned about tax rises over the medium term, rather than imminently.”

Nick Ritchie, senior director of wealth planning at RBC Wealth Management, said that some of his clients have been accelerating the disposal of assets or relocating, having decided that a Labour government would immediately legislate for higher taxes.

He said: “We are seeing increasing enquiries from UK-resident, UK-domiciled clients (with no non-UK connection) who are asking whether an increase or alignment of capital gains tax rates to income tax rates is possible and considering relocating if it were.”

Simon Allister, head of wealth planning at LGT Wealth Management, said that the combination of policies announced was already having a significant impact on some of his clients.

Several clients who worked in the City – and had children in private schools – were having to evaluate their positions as a result of the changes, he said.

But Labour’s promise not to raise taxes for “working people” has caused consternation, as the prime minister and chancellor have offered different definitions of what this meant.

In an interview with LBC, Sir Keir said that his definition of “working people” meant those without the ability to write a cheque when they get into trouble, or those without savings.

Then-chancellor Jeremy Hunt told The Telegraph in response: “Keir Starmer has let slip Labour’s true plans – to raise taxes across the board.”

But the next day, Ms Reeves, who has taken over as head of the Treasury, signalled that the definition of “working people” could include savers and pensioners.

The flexible and uncertain definition of “working people” could put a range of tax hikes back on the table, including capital gains (CGT) and inheritance tax.

The annual CGT allowance has already slashed to just £3,000 from April, having been £12,300 in the 2022-23 tax year.

Currently, rates for individuals are 10pc and 20pc on most sales.

There are concerns that an incoming Labour government could introduce higher rates, in order to match income tax bands at 20pc, 40pc, and even 45pc.

In 2021, Ms Reeves said that she would evaluate all tax reliefs and exemptions if Labour came to power.

She once described an exemption for family homes as one of the most “blatantly unjust” policies.

Under the current rules, inheritance tax is charged at 40pc on anything over £325,000. This increases to £500,000 if a home is being left to children or grandchildren.

There are also further reliefs to protect businesses and large estates.

Agricultural property relief provides up to 100pc relief from inheritance tax to those passing on farmland and farmhouses. Business property relief also provides up to 100pc tax relief on qualifying shares.

Chris Shepard, a tax expert at wealth manager Evelyn Partners, said that his clients were “crystallising” their existing reliefs, either by giving property to relatives early or by selling holdings before any CGT changes are made.

Mr Shepard said that high interest rates being offered on cash accounts meant that more of his clients preferred to take their money “off the table” now, rather than risk not cashing in before CGT rates increase.

He said: “We’ve been talking about CGT changes for years, it’s becoming a self-fulfilling prophecy. One day it will happen, and I expect it will happen sooner rather than later.”

But he said that some of his clients were struggling with the idea of needing to make gifts earlier in order to avoid inheritance tax bills later on.

“It’s still not clear what is going to happen with some of the [inheritance tax] reliefs,” he said.

“There’s a bit of a balance to be had here in relation to protecting the next generation against themselves, [they are worried about] giving them too much money too early on.”

Ms Loydon, of St James’s Place, said that her clients were nervous about making big changes to their holdings while there was still so little certainty.

She said: “I get a sense clients are being lulled into a sense that there will be time to do stuff before it gets introduced. Now whether that materialises is a different question.”

She added that there was growing concern that money saved in pensions could come into the scope of inheritance tax.

Currently unspent pensions are free of death duties, with the inheritor paying income tax at their marginal rate of income tax only when cash is withdrawn.

If the saver dies before 75, pension money is passed on free of all tax.