Five Budget Suggestions From High Net Worth Investors

Ahead of next week’s budget Wealth Club asked its clients what one policy they would introduce if they were the Chancellor. They picked out five of the more unusual suggestions below.

Combine National Insurance and Income Tax in a single, higher income tax

Currently if you’re employed you will pay both National Insurance and Income Tax on your wages. That means that tax payers in the 20% income tax bracket can end up taking home less than 80% of their salary.

Several other sources of income, including pensions and rental income, are not subject to national insurance – creating potential for complexity and lower rates of tax on unearned income.

Wealth Club investors suggested scrapping employees National Insurance altogether and offsetting the cost with a higher rate of income tax that applied to all forms of income.

Reduced employers National Insurance for groups where the government is aiming to increase employment – such as those over retirement age or people with disabilities

It’s not just employees who have to pay national insurance. Employers do to.

Wealth Club investors suggested either raising the threshold at which employers National Insurance was paid or cutting the rate for certain groups where the government is keen to increase employment – in particular those over the age of retirement or with disabilities.

This could create incentives for employers to actively recruit from groups they currently struggle to reach.

Abolish any tax that raises less than £1 billion

The complexity of the tax system is a source of constant complaint by both businesses and individuals. To make matters worse some of those taxes don’t even do a good job of raising revenues – administering a tax can even be more expensive than the money it raises.

Some clients felt a better solution would be to abolish all taxes raising less than £1 billion a year, and replace them with higher rates on larger taxes – making the system as a whole cheaper and reducing the administrative burden on businesses, individuals and the government.

Reintroduce tax free shopping for tourists

Reintroducing tax free shopping for tourists was a surprisingly common suggestion among Wealth Club clients.

Until 2021 visitors to the UK could claim back VAT on good purchased in the UK, but consumed abroad. Similar schemes are found elsewhere in the world, with the aim of boosting spending by international tourists when they visit.

The scheme was scrapped when the UK exited the EU. The government also found that the benefits were mostly felt by London and outlet shopping center Bicester Village - and so the relief was not benefitting the whole of he UK equally – and flagged concerns around the old paper based system and potential for fraud.

Unfreeze tax thresholds

Less surprising, but among the most common suggestions, was raising tax allowances in line with inflation.

Stealth taxes, or fiscal drag, has become a major feature of tax policy. Investors flagged income tax, capital gains, inheritance tax and stamp duty as areas where frozen tax allowances should be increased.

Freezing capital gains seemed to spark particular ire – since investors would be more likely to pay tax on gains that were below the rate of inflation, despite a real terms decline in the value of those assets.

Nicholas Hyett, Investment Manager at Wealth Club, commented:

“Wealth Club clients generally seem sympathetic to the balancing act that government’s have to handle when making tax decisions. Tax cuts need to deliver economic returns or support wider social goals to justify them.

There are some areas where fairness is at stake though, and reintroducing inflation linked tax thresholds is one area where high net worth investors feel there is room for particular improvement. This isn’t a surprise – stealth taxes have been slowly squeezing taxpayers across the income spectrum. High net worth investors have been particularly hard hit by those freezes – given they are more likely to face the whole range of income, capital gains and inheritance taxes.”