Legacies after the coalition
The Tory party’s surprise outright victory in this year’s election will have some effect on the value of legacies received over the next five years; in the longer term it may affect the number of legacies given too. On balance, from an economic point of view, we believe that a single–party Conservative government will have a positive impact on legacy values over the next five years.
Firstly, the Tories’ success has given renewed confidence to the financial markets, who view them as more whole-heartedly business-friendly than a coalition or Labour government would have been. One reason for the City’s relief is the removed threat of the anti ‘fat-cat’ measures to be introduced by Labour. The proposed Mansion Tax, the removal of all non-dom tax breaks and increases in corporation tax could well have discouraged international businesses and wealthy individuals from locating in the UK.
Over the past decade house prices have increased by an average of 6.8% p.a. in London, compared to 4.3% p.a. in the rest of the UK. Partly as a result of the Tory victory we expect to see property prices in London and the south east of England rise sharply. The price gap between the inner M25/eastern M4/M11 corridors and the rest of the UK is likely to widen still further.
Looking ahead to 2017, the European in-out referendum could also pose a threat to legacy values. If British voters chose to leave the European Union, a period of significant economic instability would follow (impacting on both share and house prices) and long–term GDP growth rates would probably fall. For now, our money is on the UK staying in a restructured, reimagined European Union.
Shortly before the election David Cameron announced proposals to introduce a transferable ‘family home allowance’ which would allow a couple to pass on their £1m property to their children and grandchildren tax-free. While the exact workings of the new – and complex – IHT rules have not yet become clear, they are likely to have some impact on some people’s propensity to include a charitable gift in their wills.
The removal of the need to side-step the tax man by giving to charity may discourage some potential legacy givers in this affluent (although perhaps not rich) group; especially if it gives solicitors less reason to raise the subject with their clients. However, we believe that the impact will be relatively limited since – in our experience – philanthropy, rather than tax efficiency is still the main motivation for leaving a legacy. And don’t forget that around two thirds of legacy income (in value terms) comes from childless people, who do not have direct descendants and will therefore not be able to take advantage of this new rule.
Finally, in the aftermath of Labour’s humiliating defeat we have a new opposition leader; Jeremy Corbyn. Clearly Mr Corbyn’s character and political views are very different to his predecessor Ed Miliband. If the Tory press – and many of his former colleagues – are to be believed, Jeremy Corbyn is unelectable. In which case, we can expect to see another Conservative government in 2020, albeit with a new prime minister. However, as we all know a week is a long time in politics, much less five years! So watch this space…