High net-worth confidence slashed by tax changes
Wealthy Brits’ faith in the UK economy has eroded dramatically in the past six months, as a perfect storm of tax rises, sluggish growth and stubbornly high interest rates continues to eat away at sentiment among affluent households.
According to a a regular study of wealthy UK residents, high-net-worth individuals’ overall confidence in the economy has fallen from 66 per cent to 59 per cent, and remains considerably lower than the 84 per cent recorded shortly before Labour’s maiden Budget.
Nearly 50 per cent of respondents felt that they pay too much tax. One in five cited the higher rates of income tax, which Rachel Reeves rose November when she froze the tax’s thresholds in a bid to suck more taxpayers into higher bands, as the least popular of a string of tax rises.
This was closely followed by inheritance tax, which almost 30 per cent of those surveyed believe should be abolished.
Last year’s Autumn Budget saw ministers unveil a further bout of punitive tax reforms. As well as freezing income tax thresholds, the Chancellor opted to cap salary sacrifice schemes, freeze tax thresholds and lower the cash ISA ceiling in a bid to plug a £21 billion-pound fiscal black hole.
This measures compounded unease among wealthy Brits about the increasingly progressive tax system, the study’s authors said.
“We are seeing younger clients starting to focus on inheritance tax, even pre-retirement, with trusts often being a key consideration on their minds, especially where minors are involved,” said Henrietta Grimston, chartered financial planner at Saltus, which commissioned the study.
“This is a marked change from a few years ago when often trusts were perceived as too complex by HNWIs.”
Personal finance concerns
Confidence in personal finances also dipped, with inflation remaining the biggest perceived risk to personal wealth.
Others highlighted their decision to send their children to private school was adding to their financial difficulties. Over 68 per cent said they plan to sacrifice other luxuries to continue paying school fees, after the government made them liable to VAT at its maiden Budget.
Alex Pugh, chartered financial planner at Saltus, said: “We’re seeing that for many high net parents, paying for their children’s education remains a major aspiration, but the additional cost has forced a reassessment of what is affordable, what is sustainable and what truly represents value in the long term.”
HNWIs are also taking a more cautious approach to long term planning, with just 11 per cent using their full £60,000 pension allowance last year, with average contributions reaching £31,500, suggesting growing worries about the cost of living in retirement.
In particular, older HNWIs felt the least confident in their finances, in contrast to just one per cent of 25-44 years old who reported feeling ‘unconfident’.
Those with children also expressed a lack of confidence, arguing that the state of the tax system will damage their children’s ability to support themselves financially in the future.
Political regret
Respondents’ eroding economic confidence has led some to reevaluate their political affiliation. Four in 10 voted for Labour in the last election, the poll found, but only 30 per cent confirmed they would do so again, citing the collapse of graduate employment and rising government borrowing.
Over 55s primarily shifted their allegiance to Reform, with over 30 per cent expressing their support for the party, while favour of the Conservatives remained flat at 20 per cent.
Political woes have also pushed more wealthy Brits to join the exodus of HNWI individuals and entrepreneurs who are seeking opportunities in ‘tax havens’.
Over 25 per cent of respondents said they were considering leaving the UK permanently, with 11 per cent already starting the process.
Nearly 20 per cent were looking to move to the US, while others planned to relocate in Canada, Spain, the UAE and Australia.