The article has originally been published on FTAdvisor.com. Read the article here.

In the three months since deciding to write this article, the UK political arena and Brexit strategy has changed so frequently and quickly it has made it impossible to take a position. At the time of writing, May is looking to hold a fourth vote on the UK Brexit deal, potentially removing the UK from European elections come the 23 May 2019. What is more, the early indication from local elections is showing a combination of surprising party wins and losses, and growing hostility among the electorate. As a result of ‘Definite maybes’, changing loyalties and both Tory and Labour MPs flocking to the new and rising Brexit Party, the uncertainty around Brexit continues. 

In addition, the past two years have shown that the ‘political party popularity pendulum’ continues to frequently swing with velocity. The creation of the Independent group in the midst of everything leaves additional uncertainty in understanding, once the Brexit dust has settled, which party will be leading the UK into the future and what does this mean for taxpayers? 

For the fatigued Adviser, or individuals considering succession and legacy planning, any and all options leave questions about portability of existing planning structures, access to funds, diversification of investments and potential changes to taxation which would impact the many, not the few. 

Government challenges

While we can look into 2019 with no immediate election in sight, Brexit and Political party turmoil have kept the prospect of a change in government alive. One would expect any government in the aftermath, to be focused on the available sources to generate revenue for the long and short term. As an example, the government has already set out that tariffs are to vanish from 87% of imports in an attempt at preventing a ‘price shock’ in the event of a No Deal exit from the EU which was increasingly more likely.
Countering revenue lost from import tariffs, is likely to be though increasing taxes, historically, to the wealthier divisions of society. This move has not only proved popular in sections of the voting population, but it provided governments with immediate cash flow. 

The absence of a Labour government for an extended period of time, has allowed a Conservative agenda to root itself in people’s expectations of what tax changes and updates would be. Depending on who leads Labour post-Brexit, their policy outlook, and therefore impact, could be very different. 

However, the mounting pressure for Theresa May to quit the Conservative party, creates further uncertainty on which party will lead Britain post-Brexit. Political instability can leave investors and adviser wary of taking steps or making decisions, particularly where personal wealth is concerned.

Tax changes afoot?

Increasingly fraught Brexit discussions may cause clients to start considering more radical action, prompted in part by the nature of the Labour government that might come into power, in particular under a ‘Corbyn-led’ Labour. Reflecting the Labour Conference Autumn 2018, some of the measures put forward by the opposition have been well publicised

• Tax at 45% on those with income of £80,000 and above.
• Reintroduction of a 50p tax band from £123,000.
• Moves to charge an ‘excess levy’ on salaries above £330,000.
• Corporation tax increases to 2011 levels to 26%.
• Increased anti-avoidance programmes.
• A proposal to publish the returns of those earning more than £1 million a year.

This is not to say that such a government would for certain introduce these measures, or that they would have sufficient support to do so. It’s worth considering that, depending on the economic outcome of Brexit, it isn’t outside the scope of possibility that a Conservative government may consider implementing some similar measures to raise revenue. Interestingly, items not expressly set out in the Labour or Conservative manifesto, include any specific changes that would be made to IHT and capital gains tax. 

Crystal gazing

Whether this time next year the UK has a sitting Labour or Conservative government is unclear and depending on the quality of Brexit achieved, one can only speculate on any potential fiscal policy changes we could see. 
If we are purely ‘guesstimating’, could we see a hike in IHT rates? Or the removal of reliefs such as potentially exempt transfers? Could we see an increase to the full rate of IHT for chargeable lifetime transfers? Perhaps the disappearance of the nil rate band (NRB) for estates under a certain value, or the introduction of capital controls? Could we see further changes to applicable VAT rates or further changes to import/export tariffs? Could we see an increase in the capital gains tax top rate or the removal of the lower rate altogether?
Overarching all of the above, is uncertainty. It is unlikely that a clearer picture will materialise in the short term, and as such, it may be best for people to act sooner rather than later to ensure they can protect, preserve and pass on family wealth.

What are the options?

The above is of course guesswork, but in line with any potential Brexit outcome, increases in taxes are likely to encourage individuals to evaluate their current asset structures, circumstances, investments and future plans. It is understandable that they might think about investing abroad or even moving there, and that they might turn to simple, established planning, including investment-linked insurance. Optionality will play a role in protective and preserving wealth and legacy as it stands today and some may consider:

• ‘riding out the storm’. The beauty in the uncertain is the certainty that everyone is in the same boat. No one can predict which Brexit option will prevail or which government will be in power come 1 January 2020, but this could leave clients and advisers leaving it too late to take preventative or protectionist steps.
• relocating to another country. Those with the ability to move to another country may choose to do so, taking steps to remove themselves from the UK tax net sooner rather than later. Although, time may be limited on when this can be done without consequence. We don’t know what emergency legislation is on standby, nor what provisions are in place to combat large or multiple movements of wealth from the UK. Though it may be an easier option for some, for those who have family roots or obligations in the UK, this may not be practical. A life policy for example, would serve both categories of people.
• staying in the UK, but look to portable solutions in the event a move is made, while ensuring investments, wealth and legacies are protected.

In all of the above paths, a life policy remains a relatively straightforward means of safeguarding wealth as an EU-issued investment, while weathering a currently uncertain future. Ultimately, such a policy could offer a welcome degree of optionality. If the regime changes, insurance could buy clients time in the face of a greater tax burden and other complications. That may be time to plan, or time to move in which case a policy can follow them to their destination while continuing to be efficient – something that other arrangements, such as trusts, can struggle with. 

If there is no change then clients continue to benefit from the advantages they are accustomed to. In particular, the tax deferral of a life policy allows investments to grow and remain in the policy without impact, until rates of tax or government changes.


By Lana Mallon 
Senior Wealth Planner
Lombard International Assurance