What does Labour’s Mandate for ‘Change’ mean for the Ultra-High-Net-Worth?

In a landslide victory, Labour ended conservative power for the first time since 2010 in the recent election. Their manifesto for 2024 was titled ‘change’, but what does this mean in practice for individual wealth, the economy and the housing market; particularly for high-net-worth individuals?

The property market had already been showing tentative signs of a recovery after a very difficult year. At the end of May, according to a report by Nationwide, UK house prices had seen a modest bounce back after two months of falls. HMRC data also showed a fourth consecutive monthly rise in house sales in April in the UK, rising by 5%. Although its important to note that at the top end of the market super prime property prices had remained even more rigid.

Good news for mortgages, May's Bank of England Monetary Policy Report suggested that the base rate will fall from 5.25% to around 3.75% by the end of 2026. It recently fell to 5% and is predicted to have further cuts before the end of the year.

We can’t be certain how the election of a Labour government will affect interest rates beyond this of course, especially as the Bank of England is acting autonomously plus much depends on how the financial markets respond to the new government in the mid-term, but we do know that Labour has several plans to tackle the housing market.

 

What do Labours proposed housing policies include?

Their revamped version of the Mortgage Guarantee Scheme (Freedom to Buy) was the stand-out pledge for first-time buyers from Keir Starmer’s election manifesto. It will mean better mortgage terms for first-time buyers, making it easier for young people to enter the housing market.

The government also promises to build 1.5 million homes over the next parliament, prioritising brownfield sites and allowing development of grey belt areas (such as wasteland or disused car parks within the green belt), including several new towns, led by Matthew Pennycook as housing minister (former shadow minster for the Department for Levelling Up, Housing and Communities). Other plans include re-introducing local housing targets, recruiting more planners to local government, better rights for renters, and the promotion of social housing. This is a response to a historical under-supply of housing, exacerbated by supply declining during Covid.

Labour has also hinted at reforms to stamp duty and property taxes to alleviate the financial burden on buyers. Potential changes could include reductions in stamp duty for first-time buyers or the introduction of a progressive tax system where higher-value properties are taxed more heavily. These reforms could kick-start market activity by making property purchases more financially viable for a broader range of buyers. Although such measures may lead to more artificial market impacts that fade over time, as the market adjusts and resettles once changes have bedded in.

One thing we can say for sure is that prime and super-prime markets are less affected by macro environmental conditions and remain strong. In fact, while the London super-prime market faced speculation in the run up to the UK general election, because of uncertainty around the existing non-domiciled taxation regime, it remains the second biggest global super-prime market on an annual basis, 15% ahead of New York in terms of sales.

 

What changes will affect individual wealth?

Starmer’s manifesto places an emphasis on wealth creation, aiming to grow the economy and ‘keep taxes, inflation and mortgages as low as possible,’. However, with spending plans seemingly exceeding the amount of anticipated new revenue, the money must come from somewhere.

Inheritance tax has been widely discussed in recent months, and even recent days, and was a noticeable absentee from the manifesto, another area to watch is taxes on dividend income. Labour has, however, been very clear on their intent to introduce VAT on private school fees, which now looks to be implemented as early as Jan 2025. They also plan to end the use of offshore trusts to avoid inheritance tax, with the aim of ensuring that everyone who makes their home here in the UK, pays their taxes here. Additionally, Labour has set out plans to increase the rate of Stamp Duty paid by non-UK residents.

Wealth managers reported that many clients began selling assets such as shares and property on the run up to the election. This rush to offload investments was a result of uncertainty about tax reforms, particularly amid fears of an increase in Capital Gains Tax. Whilst Shadow Chancellor Rachel Reeves recently said Labour has no plans to raise CGT in the immediate future, this doesn’t necessarily mean the new government have ruled out increasing the levy completely during their term.

 

How can I mitigate these legislation changes?

'We don’t know yet exactly how the Labour governments plans will shape up. If, indeed, reforms do go ahead, there will be fair warning before they’re introduced, giving high-net-worth individuals the scope to re-visit their portfolio.  A good financial adviser familiar with the needs of these clients, will look at ensuring a well-thought-out investment strategy for the long term. Whilst property has constantly performed well as a reliable asset class in the long-term.

‘Realistically, no one really knows for sure what will happen as a result of the election. However, Enness have been around for 17 years and have weathered several changes in government (and dare I say many prime ministers) and our expert team can help navigate and guide clients through these changing times. The key thing is not to panic or make snap decisions. As the market adjusts to a Labour leadership, we’ll be keeping a very close eye on the financial landscape and what this means for our clients, with a view to flexing our approach accordingly.’

- Islay Robinson, CEO of Enness Global

 

If you’re a high net worth individual and have questions about what a new Labour government might mean for your wealth and investments, please get in touch.

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