Labour General Election win could spark 'brain drain' over tax fears, say finance experts

Wealthy Britons are selling assets, such as property and shares, to avoid a feared tax grab by a new Labour government, it is claimed.

Finance industry experts also report that some clients are leaving the country to hold on to their riches.

Central to their concerns are fears that Labour will make changes to Capital Gains Tax (CGT) to ensure profits from asset sales and share dividends are taxed in the same way as income.

Currently, CGT is typically charged at 20 percent versus the 40 percent that applies to those on high incomes.

An equalisation of the rates of CGT and income tax was introduced by Margaret Thatcher’s Chancellor Nigel Lawson in 1988, however this was significantly changed by both Labour and Conservative chancellors in subsequent decades.

Financial planners representing wealthy people say corporate chief executives, business entrepreneurs and others are already offloading investments.

Labour’s Shadow Chancellor Rachel Reeves has said her party has no plans to raise CGT, but she has refused to rule out increasing the levy during a Labour government’s full term.

Sir Keir Starmer has also talked about not raising taxes on working people, however it is thought this leaves the door open to increasing tax on unearned income.

Currently, there is no CGT payable on any increase in the value of a main family home, however the Conservatives have claimed that this is something Labour could target, something denied by the party.

The Financial Times said several wealth managers report that “lots of clients” had been in contact with questions about a possible CGT increase.

For higher or additional-rate taxpayers, the tax is levied at 20 per cent on gains made from selling assets, although property is taxed at up to 24 per cent.

Toby Tallon, a partner at wealth manager Evelyn Partners, said some of his clients were “taking action now to sell assets”, especially those who needed cash soon, while others were “sitting tight for now, pending the results of the election”.

He added that the clients selling shares were “people who already had plans to sell something in the short to medium term and it was just a question of when”.

Nick Ritchie, a senior director at RBC Wealth Management, said there was “a general nervousness (around) the silence on CGT”.

He added that a minority of clients were already selling assets to ensure their gains were taxed “at a favourable 20 per cent”, while others were taking a wait-and-see approach.

Mr Ritchie warned that some wealthy individuals were considering moving overseas, and several would “seriously be exploring moving offshore and becoming non-resident” if CGT were to be significantly increased.

He told the FT: “That’s a worrying trend; you could see a brain drain of people who are building businesses, creating jobs and have already paid significant amounts of tax in the UK.”

Ian Cook, a chartered financial planner at wealth manager Quilter Cheviot, said: “Buy-to-let owners are actively selling. The people most concerned are the multiple-property owners, as a sale might take months.”

Andrew Shepherd, chief executive of wealth manager Brooks Macdonald, claimed boosting taxes on the wealthy could hit economic growth, saying it could “potentially discourage investment in UK plc at a critical time for the economy”.

He added: “We always see a rise in client calls during general election periods, as people seek advice on how new policies might impact their financial plans.”

Labour said: “Nothing in our plans requires any additional tax to be increased. We have set out fully costed, fully funded plans, with very specific tax loopholes we would close.

“We have said very clearly that our interest isn’t in raising taxes — our priorities are economic growth and making working people better off.”