The HindeSight Letter

ISSUE 123 - MAY 2025 (Published June)

OVERVIEW

Most people have heard the stories from the 1970’s of famous musicians, such as Rod Stewart and The Rolling Stones leaving the UK to avoid the 83% top rate of income tax and the 98% tax on investment income. Of course, there were many less well-known businessman and entrepreneurs of the times doing the same to avoid the socialist nonsense, most associated with Harold Wilson’s Labour government. While history is often expected to repeat itself in many aspects, some blindingly obvious mistakes made in the past that make it to the headlines are usually avoided in the future. Not so, currently it would appear.

Far too many conversations with friends and ex-colleagues in recent months get quickly to the question, “ Where are you off to then ?”...With the expected answer of Italy, Portugal, Switzerland or UAE awaited, as the current tax-friendly countries. Some of these people are retired, thinking about their inheritance planning for their children but many are still working and considering their travel options for their current earning income. These are not the ‘infamous Non-Doms’ who appear to be steaming out of the UK in droves, ‘strangely’ reluctant to be taxed on overseas income because they have chosen to reside in the UK currently, “currently” being the operative word. No, these are surprisingly normal people, (obvious not civil servants!) with a few quid or people who hope to work hard for their future few quid but do have the option to move and not be taxed to b*ggery.

Unfortunately, the current Labour government seems intent on making all the mistakes of history when it comes to the ongoing desperate search for more tax revenue needed for their desire for unproductive burgeoning state and greater welfare benefits. I have written before about the standard “Laffer Curve” in respect of tax collection failures but the Economics 1.01 chart of Demand & Supply as a function of price and quantity seems surprisingly overlooked too.

The basic demand/supply graph above should always remind us that more often than not, when prices rise, demand drops. Funny old world, change the most important parameter, get a different output!! Currently, this is being seen almost everywhere in tax ‘plans’ and fast becoming the main topic of the proverbial dinner party discussion with;

• The Non-Doms’/Or anyone’s? ‘demand’ for continuing to live in or move to the UK is dropping because the ‘price’ (tax rises) of doing so has risen so much.

• The demand for sending your children to an independent/private school is dropping because the price has risen so much with the introduction of VAT on fees such that many more children heading for already over-stretched state sector.

• The demand for moving house is dropping because the price, (Stamp Duty) has risen to such levels that it has finally killed one of the golden gooses of the British obsession with property

• The demand for hiring new employees is dropping fast because the price, (National Insurance increases) has risen dramatically.

• And so on...

Assuming that there are actual forecasts, (Obviously, ”Ass out of me and you springs to mind”), being done by our UK Chancellor Rachel Reeves and the UK Treasury for expected future tax collection with different ‘price’ changes, I can only think that there is more hope than substance. Or there is a confident arrogance of the inelasticity of the goods ‘demand’ with higher prices which is obviously being proved wrongly with daily headlines.

The problem now are the words you will very rarely hear from any politician, let alone from such a ‘determined’ lady as Rachel Reeves, our ‘current’ UK Chancellor, “I’ve made a real cock-up here in my numbers and it clearly isn’t working, so I am changing it”. The old adage of getting out of a hole, first you must stop digging is seemingly lost on the current administration.

Very notably from that long list of tax change consequences of its extent, was one that I was only alerted to recently of the real concerns in the UK property market when two friends who are unfortunately both getting divorced, mentioned the total lack of house viewings they had so far for their primary matrimonial asset. The most recent changes in stamp duty levels from April on top of changes over the last decade, coupled with the Non-Doms tax rises at the top end look to have put the complete kibosh on a sector that has long supported wealth and work creation in the UK. When you look at the numbers, it’s not difficult to understand why;

Standard Rates (Main Residence, Non-First-Time Buyers)

• £0-£125,000: 0% (no tax)

• £125,001-£250,000: 2%

• £250,001-£925,000: 5%

• £925,001-£1,500,000: 10%

• Over £1,500,000: 12%

Additional Property Rates (Second Homes, Buy-to-Let)

An extra 5% surcharge applies to purchases of additional properties (e.g., second homes or buy-to-let) on top of standard rates, starting at £40,001:

Non-UK Resident Surcharge

Non-UK residents (not present in the UK for at least 183 days in the 12 months before purchase) pay an additional 2% surcharge on top of the above rates (standard or additional property rates).

First-Time Buyer Rates

First-time buyers get relief on properties up to £500,000:

• £0-£300,000: 0% (no tax)

• £300,001-£500,000: 5%

• Over £500,000: Standard rates apply (no relief)

Corporate Buyers

For residential properties over £500,000 purchased by certain non-natural persons (e.g., companies), a flat 17% rate applies from 31 October 2024.

You don’t need to be a whizz city analyst to understand what is occurring. The stamp duty is now at such levels that it is impeding activity to a great degree, people just can’t afford to move and it is likely to get much worse. You are starting to see a few new builds advertising, “ Stamp Duty paid” which of course is just a price cut, but plays to what you can borrow on mortgage. Obviously, this is really not good for people who want to sell for all the usual reasons, Death, Debt, Divorce, Downsize-Departing. But it is really not welcome in the UK, which has long enjoyed the wealth creation of property as well as the many related industries, such as mortgage providers or tradespeople that have come to rely on the turnover. The less expected transactions, the more the selling prices will decline to reflect it as price is the great equaliser. The chart below is of well-known UK housing portal, Rightmove PLC which has seen price gains over the last year. At 1.20% dividend yield and P/E close to 30X and the potential for transaction projections, I can safely say this stock won’t be making the HindeSight Portfolio any time soon and wouldn’t be at all surprised to see it on the industry’s short-sellers radars.