The Halloween Budget – will wealth creators be spooked?
Many sat down to watch the Halloween Budget with the nervous excitement of a cinema audience at a screening of a much-hyped slasher movie. There had been so much speculation about the gory horrors that the Chancellor had stored up in that infamous red despatch box. Surely the Budget could not be as stomach-churning as everyone was fearing?
It is undoubtedly true that for some individuals, aspects of the Budget will have come as a relief. The widely-trailed CGT rate-rise turned out to be moderate. Rates of tax on investment income were left untouched. The Chancellor did not raise the headline rate of IHT, or mess with the hallowed “PET” regime for lifetime gifts. The changes to the treatment of carry will, seemingly, not be too Carrie. In some respects, then, the Budget was less Nightmare on Elm Street than a Relieved Snooze in Parliament Square.
For others, though, the nightmare is real. The decision to cut BPR and expose the estates of business owners to 20% IHT, has sent a nasty message to wealth creators. This is a bizarre step for a supposedly pro-business, pro-growth government to be taking. BPR and its sister relief APR are there for a reason – without them, deaths can have a calamitous impact on the integrity of businesses and farms, which need to be sold on, fragmented or burdened with expensive debt, to enable IHT to be paid.
The Budget was also a continuation of a bad dream from which UK resident foreign domiciliaries have been hoping to wake. The government has been warned by experts that the proposed reforms in this area are unlikely to generate the tax revenues which have been promised, and indeed are likely to have a negative impact on the country’s finances. The OBR statement accompanying the Budget flagged the uncertainty of the fiscal effects of these reforms, and the sensitivity of those effects to behavioural responses of wealthy and intrinsically mobile individuals. There is widespread concern that the reforms will leave the UK uncompetitive and unattractive compared to rival countries. But despite all this, the government is pushing ahead, relentlessly. This is a zombie policy, created by the outgoing Conservative administration, unthinkingly adopted by the incoming Labour government and now seemingly unstoppable.
Many “non-dom” entrepreneurs and investors have been making plans to leave the UK. The sensible among them have not yet implemented those plans, but have been waiting in the hope that the government will recognise that its proposed reforms to the taxation of foreign domiciliaries do not make sense. Sadly, there is no evidence that the penny-dropping moment has yet arrived.
This is likely to trigger successive waves of individuals selling UK homes, pulling their children out of UK schools and taking the steps needed to ensure that they are non-UK resident, in some cases from this coming April. This is a depressing prospect for a country which is hungry for economic growth, and desperately needs the financial support for frontline services which a well-designed tax regime for “non-doms” could provide. The frustrating thing about this is that an economically successful regime for internationally mobile wealth creators would be so easy to put in place, if only the government would listen. Putting this in cinematic terms, the audience is screaming at the screen, but the hapless protagonist is oblivious, and seemingly determined to head down into that dark basement…
This article was first published in Practical Law Private Client - Autumn 2024 Budget: Views from practice: Private Client.
