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The General Election and HNWIs

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On Election Day, Waverton's Rupert Elwes assesses the impact of potential reforms on HNW investors…

British politics, across the spectrum, increasingly resembles some form of grubby prime time TV dating show. As the election draws ever nearer attempts to woo the electorate get even more desperate. Though it is not restricted to any one party, the latest example is Labour’s intention to end the resident non-domiciled status. 

This policy will undoubtedly be popular, nonetheless it is another example of short term ill-conceived populist rhetoric, where little attention has been paid to the unintended consequence it may reap. Politicians seem intent on playing high stakes poker with the economy for their own, self-serving, purposes. 

The first misconception to dispel is that resident non-domiciled individuals (RND’s) are shirking their responsibilities to British society. Figures suggest that, in 2012-13, the 114,800 RND’s contributed GBP8.2bn in income tax alone to the HMRC. That fails to take into account, indirect taxation and the often quoted trickledown effect which is notoriously hard to quantify, but estimated to be significant. In 2013-14, 1 per cent of workers contributed 30 per cent of all income tax, we have, unintentionally, found ourselves dealing with a delicate house of cards, where one false move could bring everything tumbling down.

Politicians correctly highlight that previous attempts to increase taxes and restrictions on the RND individuals have likewise been met with howls of protestation from those with a vested interest in maintaining the status quo. Admittedly changes so far have failed to dent the attractions of the UK to high net worth RND individuals. However, this feels increasingly like a game of Russian roulette and eventually the fatal bullet will be fired.

Politicians face a delicate balance; addressing widening income inequality alongside the need to keep the economy expanding. Yet the combination of recent announcements seems to state that overseas generators of wealth are not welcome in the UK. The increase in top rates of stamp duty, a proposed mansion tax, possible increases to the top rate of income tax and removing the RND arrangements seem a potent cocktail for the internationally mobile to swallow. At some point politicians will push too hard, the door will open, and a trickle will become an exodus – at this point, any salvage operation becomes impossible.

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