Tax
Paying For The Pandemic: What UK Wealth Managers Might Expect

The UK government sets out its tax and spending agenda on 3 March. In these extraordinary times, it has the unenviable challenge of reviving an economy hammered by lockdowns while avoiding public finances spinning out of control. What should wealth advisors and their clients expect?
The UK government, like most of its peers, has the task of reviving the economy after the worst of pandemic-induced lockdowns are over, while bringing in revenues to pay off a huge debt. It’s worth noting that public finances in the UK had not been in surplus even before COVID-19 struck – 11 years after the bankruptcy filing of Lehman Brothers. But raising taxes doesn’t necessarily bring in commensurate income, given that taxes can blunt incentives and distort economic behaviour. (That said, not everyone buys the argument of US economist Arthur Laffer that marginal tax rate rises reduce, rather than boost, revenue. See a book review here.)
Within the UK context, finance minister, aka Chancellor of the Exchequer, Rishi Sunak, has some unenviable choices in front of him. And wealth advisors will be aware of how HNW clients are likely to shoulder a significant part of any added burden. The pandemic and the repression methods the State has used arguably increase inequality: white collar professionals can work from home; people who worked in restaurants, travel or hospitality have lost jobs, possibly for good.
To discuss these matters is Glenn Branney, regional head of wealth planning at Julius Baer International. The editors are pleased to share these views and invite responses. The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com
Paying for the pandemic – is now the right
time?
On 3 March, Rishi Sunak, our Chancellor of the Exchequer will be
presenting the spring budget – no mean feat given our current
situation. The government has spent £300 billion on managing a
pandemic with national debt at a record £2.13 trillion, but there
is still a lot of work to be done to protect the economy and
individuals who have suffered as a result.
The pandemic must be paid for somehow and the big question on everyone’s lips is how, when and who will be hit hardest? Many are predicting that for now, there will be a continuous focus on improving consumer spending, which means that any material changes might not happen immediately – but only time will tell.
Like many, our clients are uncertain and have a lot of questions – many of which we are still unable to answer – and I’m frequently asked about what impact this will have on personal affairs and the potential ramifications for businesses. With this in mind, I have outlined the most commonly asked questions and concerns raised by clients as we await Mr Sunak’s hotly anticipated address.
What will the Chancellor target first?
This is a tricky one – does he start with individuals or
businesses? Corporation tax might be an obvious first step with
every 1 per cent increase in corporation tax raising around £3.4
billion ($4.79 billion) a year. But businesses have been badly
hit this year and this tax could have a huge impact –
particularly for sectors such as hospitality and retail. Many of
our clients are business owners or founders and while their
businesses may have shown enormous resilience, this tax might be
a step too far for the Chancellor, who will likely want to focus
on rebuilding and supporting businesses at this time.
Will there be a wealth tax?
Although not typical for a Conservative government, one option
might be to introduce a wealth tax, something that has been
feverishly debated for some time. According to the Wealth Tax
Commission, a 5 per cent on net assets above £500,000 per
individual could raise £260 billion. But the complexity of what
this means and what is included is huge, and may prove to be too
unpopular at a time when the country is coping with considerable
upheaval and loss. If whisperings are to be believed, Mr Sunak
has reportedly told supporters that a one-off wealth tax would go
against his Conservative Party’s values, but we’ll have to wait
and see to see how this plays out.
How might inheritance tax be impacted?
This is an incredibly important point for the majority of our
clients – especially today. The pandemic and health crisis has
sharpened the focus of many on the topic of legacy and we have
had more questions about inheritance tax, wills and power of
attorney than ever before, as well as a much broader dialogue
across family generations. There is some speculation about
whether the existing gift exemptions might be changed which will
no doubt have an impact, but to what extent is still unclear.
What about changes to the CGT exemption?
Often one of the first things that we ask our clients is are you
utilising your ‘use it or lose it’ CGT exemption. Currently at
£12,300, the Office of Tax Simplification has already recommended
that the government cut this to between £2,000 and £4,000. They
have also suggested that the CGT rate should be more closely
aligned with income tax rates, which will likely mean that high
earners are the hardest hit. With the budget just around the
corner, now might be the time to consider crystallising some
gains to benefit most from the existing rate. Talk to your wealth
planner or relationship manager now if you have any questions
about this and how it might impact your family’s finances, as
getting on the front foot will be important.
Will higher and additional rate pension tax relief be
reformed?
In 2019/20, pension tax relief cost over £21 billion, with most
relief provided to higher and additional rate taxpayers. On top
of this, over £18 billion of relief was provided on employer
contributions. This is a tricky area as we know that the pensions
gap is a problem as our burgeoning population gets older, but
there might be an opportunity for the government to make
significant savings if pensions tax relief is cut.
What about property taxation?
This is a complicated area and one where we could see any number
of changes. Most likely to be in the spotlight is the current
decrease to stamp duty costs and a possible extension to support
the property market, as well as a potential look at the council
tax regime. We may even see the introduction of one single annual
property tax (merging stamp duty and council taxes into one).
While there is no obvious solution in the property space, it is
an area that will no doubt be considered.
On top of these points, there are additional questions relating to how the government will continue to support businesses and individuals significantly impacted by COVID-19. It is clear that finding the right solution is not an easy task – there are significant pros and cons for all of these examples. Let’s hope that the Chancellor and his team can come up with something creative, while minimising the impact on individuals and businesses who have already been through a lot in the last year.