Political uncertainty is a recurring theme in today’s media. The UK is no exception with the minority Conservative government and their Labour opposition divided over Brexit and the debate dominating the headlines. Even though the Conservative government have agreed in principle to a transition period with the EU, there is still a real possibility of another election before this full term is served.
Faced with the prospect of what some describe as a ‘hard left’ Labour government taking control, high net worth individuals and families are considering what this could mean for their investments and broader wealth plans.
Labour’s historic stance
Previous ‘hard left’ Labour governments saw the highest rate of Income tax rise to 83% (during the 1974/75 tax year) which applied to all incomes in excess of £20,000.
The UK also saw an Investment Income Surcharge of 15%, which made the very highest rate of Income tax 98%. The full rate of Corporation tax was 52%, and this held through to April 1983.
What the future might hold
While it is too early to say what a change of government might bring with it, the Labour party manifesto which was published in June 2017 included a number of proposals including:
- A significant increase to income tax for those with earnings exceeding £80,000. The current highest tax rate of 45% would apply to earnings in excess of £80,000, as opposed to £150,000;
- A new highest rate of income tax at 50%, which would apply to incomes in excess of £123,000;
- An “excessive pay levy”, which would be due from employers for all employees paid in excess of £330,000.
In the “National Policy Forum Report 2017”, the Labour Party also reiterated an intention to raise Corporation tax to 26%, and to reverse allowances for CGT and Inheritance tax. The party has also proposed an “offshore company property levy” on homes held via offshore structures located in tax havens.
In the meantime, press commentary has focussed on the potential for capital controls should risks of a weakening Pound and/or capital flight emerge, and a wealth tax.
It remains to be seen whether an early election will materialise and what measures a Corbyn-led Labour government might introduce or revive. However, against this backdrop of growing uncertainty, high net worth UK resident investors may be considering a review of their wealth planning options to protect their wealth from erosion, retain control and safeguard their legacies. Insurance can be one way of achieving this.
Benefits of Luxembourg-based life assurance solutions
UK-compliant life assurance policies offer investors the opportunity to invest liquid assets outside of the UK, while enjoying a number of existing tax benefits:
- Gross roll up is available in respect of income and gains (save for non-reclaimable withholding taxes);
- A cumulative 5% tax deferred withdrawal allowance applies for up to 20 years;
- Policies are non-income producing assets;
- Generational planning: An entire Policy or Policy segments can be assigned by way of gift “in specie” to third parties (without tax consequence). Donees continue to benefit from gross roll up and cumulative 5% withdrawals, and can encash the policy or individual segments, potentially paying lower rates of income tax;
- Policy profits are subject to income tax where the investor is UK resident at the date a chargeable event arises. Investors have the option of triggering substantial gains while non-resident for income tax purposes. In this context, an absence from the UK of 5 complete tax years is sufficient;
- Statutory non-resident relief is available to mitigate a policy gain if the investor is non-UK tax resident during part of the ownership period;
- Policies can offer planning opportunities for UK resident and non-domiciled clients (RNDs) who do not wish to pay the remittance basis charge or longer term RNDs who are deemed domiciled in the UK for all tax purposes after April 2017;
- Life assurance structures lend themselves very well to non-contentious inheritance tax mitigation arrangements e.g. Loan trusts and Discounted Gift trusts;
- A breadth of investment choice is available via collective investment funds and other assets.
Why choose a Luxembourg carrier?
Luxembourg is a founder member of the EU and geographically positioned in the heart of Europe. All life company assets are held in custodian accounts off balance sheet and are owned by the insurer as opposed to the policyholder directly.
Lombard International Assurance S.A. offers policies that are portable from one country to another. A UK resident investor taking a life policy today can leave the UK for another country in future without needing to dismantle or replace the investment at that time. The future tax treatment of policy gains depends on the tax regime in the new host country. Lombard International Assurance S.A. policies enjoy equivalent tax advantages to domestic policies in many other EU countries and further afield.