Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Britain’s super-rich are Corbyn-proofing their finances

Posted by hkarner - 2. Mai 2019

Date: 01-05-2019
Source: The Economist

Efforts to protect wealth should Labour take power are being stepped up

JEREMY CORBYN may have it in for tax havens, but they are not all cursing the Labour leader right now. Well-heeled types worried about the prospect of a Corbyn-led government have been buying property on Guernsey with a view to relocating to the island, attracted by its flat 20% income-tax rate and lack of capital-gains or inheritance taxes. Demand for homes there has been buoyant this year, and Jo Stoddart of Locate Guernsey, an investment-promotion agency, says queasiness over Mr Corbyn is one of the main reasons (along with Brexit and personal security). Matt Brouard, a Guernsey estate agent, says some British expats are moving to the island rather than returning to the mainland after stints working overseas, partly because of Corbyn-induced uncertainty.

The opposition leader makes no secret of his disdain for the rich. The real divide in Britain, he said recently, is not over Brexit but “between the many, who do the work, create the wealth and pay their taxes, and the few, who set the rules, reap the rewards and dodge their taxes.” The super-rich, he has warned, are “on borrowed time”.

Small wonder, then, that plutocrats are seeking advisers’ counsel—and increasingly taking action—to keep their incomes, mansions and pensions out of Labour’s clutches. “How to Corbyn-proof your Wealth”, an event held in London in February by a club for elite investors, sold out quickly. A recent, eight-page special section on the topic in the Mail on Sunday screamed that Corbynomics threatens to wreak economic havoc that could “rival that heaped upon the poor people of Venezuela”.

Betting sites offer odds as short as 3/1 on Mr Corbyn becoming the next prime minister (he is jostling with Boris Johnson, a leading Tory, for top spot). If that happened, says the chief executive of a FTSE 100 company, the rich would “take all the money offshore, wait for the economy to crash, and come back and get richer.” There would be “a major crash in the pound and [firms] will all start losing jobs.” Private-client advisers have warned of Britain’s multi-millionaires moving up to £1trn ($1.3trn) out of the country. But the “mass affluent”, those with liquid assets in the hundreds of thousands, also have cause to fret.

Such fears have fluctuated in line with recent political turmoil. Wealth advisers interviewed for this article agreed that clients worry more about Mr Corbyn than Brexit—though the two are linked, as some fear a disorderly Brexit precisely because it could usher in a Labour government. When clients of Saunderson House, a wealth manager, were asked last October what was the biggest threat to their finances, the top answer, mentioned by 42%, was a change of government. The number would almost certainly be higher now.

The worries fall into three main categories. The first concerns existing tax and pension arrangements. Labour is likely to target pension tax relief for high earners. On income tax, it has promised to reintroduce the 50% rate on earnings over £123,000 (rather than £150,000), and add a 45% rate that kicks in at £80,000. It is likely to reverse cuts to capital-gains tax made by the Tories. And it is expected to tighten the inheritance-tax regime, possibly by reducing or removing allowances for those giving to discretionary trusts, passing on property or handing gifts to relatives. To cap it all, Labour’s manifesto pledges to impose VAT on private-school fees.

The second area is brand new taxes. Labour hopes to raise almost £5bn a year from a new financial-transactions levy. This would cream 0.2% off every transaction executed by financial firms. Some hedge funds are reportedly considering moving management overseas in response. The bigger worry is the possibility of a general “wealth tax” on assets, perhaps focused on high-value homes, to help fund social care. In 2012 John McDonnell, who has since become shadow chancellor, backed a proposal for a one-off, 20% wealth tax to help reduce government debt.

The third category—and the biggest bogeyman—is the spectre of capital controls, measures to restrict the flow of capital in and out of the country, in the event of severe economic turbulence. Labour has repeatedly denied it would consider such a draconian measure, last seen in Britain in the late 1970s. Even Mr Corbyn’s harshest critics see it as a long shot. Nevertheless, contingency plans are being put in place. A year ago, says Mr Tait, it would have seemed “ludicrous” to be mulling measures to protect against capital controls. Yet clients raised the issue in “around half” of the meetings he attended in the run-up to Easter. As an “insurance policy”, some have arranged for custody of their investment accounts (used to buy and sell securities) to be moved to the Channel Islands or Switzerland. Changing the jurisdiction in which accounts are booked in this way is all about “asset access” and has nothing to do with tax, says Mr Tait.

With a possible property-based wealth tax in mind, some rich folk are accelerating the transfer of homes to children. “They might have done this anyway when the kids were in their 20s. Now they’re doing it in their teens,” says one adviser, who has “dozens” of clients who have opted to speed up handovers. Some are also using up tax-free pension allowances, or vesting tax-free cash, earlier than required, for fear of such benefits evaporating under Labour.

A smaller number are exploring taking themselves offshore. Rather than emigrating now, the majority of these Jeremiahs are looking to buy foreign residence permits to hold alongside their British passports, in order to be well placed to hop abroad if things turn nasty at home. Advisers say they are looking not only at obvious places like Monaco and the Channel Islands but also at EU countries that have become friendlier to rich foreigners, such as Portugal (where a “golden visa” can be bought for €500,000, or $561,000) and Italy (where, since 2017, income from abroad can be taxed at a flat €100,000).

Among those who may be tempted to up sticks are resident “non-doms”: foreigners who live in Britain but declare their domicile as elsewhere to avoid tax on their non-British income. The Tories took away some of their privileges in 2016, after a media outcry over their cushy deal, but the non-doms still get fairly generous treatment for up to 15 years. The threat of a Corbyn government, though, is leading some who were wavering after the changes in 2016 to go elsewhere. Another wealth adviser has Swedish and French non-dom clients who are returning home. “Sweden and France, those well-known tax havens!” he guffaws.

Were Britain’s 90,000 or so non-doms to leave, many Corbynistas might say good riddance. Indeed, some Labour advisers believe that a falling-out with the super-rich would go down well with the public. Mr Corbyn has long accused them of using Britain to dodge tax and contributing little to the economy. But non-doms contributed a not-so-paltry £9.4bn in tax—equivalent to a third of the transport budget—in the year to April 2016.

Mr McDonnell’s team dismisses the bleating from Belgravia as alarmist. Fears over a wealth tax are as misplaced as those concerning capital controls, aides say. Yes, income tax will rise, but to nowhere near the stomach-churning rates of the 1970s. Mr McDonnell may have an avowedly Marxist past, but he has been on a charm offensive in the City, meeting moneymen to assure them he has nothing shocking up the sleeves of his branch-manager suit.

Moreover, when it comes to squeezing the rich there is not as much clear blue water between the two main parties as the Tories would have voters believe. As well as turning the screws on non-doms, the current lot have cut high earners’ tax-free pension allowances and are mulling an inheritance-tax grab. The chancellor, Philip Hammond, has warned of the need for higher taxes to fund an ageing population.

Still, tone matters, and there is a difference between measured tax increases, served up apologetically, and what looks to some like anti-capitalist blood-lust. Mr Corbyn has said he is “coming for” the rich. Some of Labour’s plans suggest a taste for confiscation. It wants to nationalise several industries, including water, for which it is considering basing compensation for investors on “book” value—currently a third of the industry’s market value—or even less. A plan to snatch 10% of shares in big British firms and give them to workers and the state has nauseated many business leaders. “The rich are prepared for higher taxes,” says Bobby Vedral of MacroEagle, a political and economic intelligence firm, “but not for expropriation.”

Mr Vedral caused a ruckus in 2017 when he predicted a Britain led by Mr Corbyn would be like “Cuba without the sun”. That is unfair—but increasing numbers of the moneyed seem unwilling to take any chances.

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