What a Labour Government has taught me

Labour have been in power now just 80 days. Phileas Fogg travelled the world in 80 days, saw new things and experienced new cultures. Like Phileas,  I've been on a learning journey for the past 80 days.

The first thing I've learnt is how quickly a regime can change.  We've gone from a relaxed "laissez-faire" government to one that wants to micro manage our lives.  Not content with bashing Greedy pensioners, Starmer wants to interfere in Oasis ticket prices and just about anything he sees on a daily basis.  He's clearly one for rules and regulations - as long as he doesn't have to follow the rules himself.

This interfering culture is creating uncertainty.  I am now unwilling to make any long term investment decisions since I don't know whether the rules will change on a whim. Taking this unwillingness to invest further I now realise I am very exposed to long term, difficult to exit investment decisions in the UK.  

Belief in money is a human illusion. Even the Romans knew this. The word "creditor" (someone who lends money) has belief the person they are lending to as they are "credible".  Creditor and credible originate from the same Latin verb "credare".

It seems that belief in your country and your government is equally fragile.  It takes months or years to gain trust which can be lost in seconds.

So what has Starmer taught me?  I no longer trust my government - at least for 5 years - so I need to take action.  Firstly I need to unwind my UK investments. Secondly I need to spread my investment risk globally so I am not exposed to dramatic changes in one regime.  By making investment decisions around the world, if one regime turns hostile, like the UK, I can limit my exposure. 

The second thing I've learnt is it's better to have liquid assets.  I like physical assets like property - you can see them, touch them and you know where they are.  Governments like physical property too.  Because they dont move easily - they can tax them and control them. Governments like you to be home owners too.  Not because it gives you security or peace-of-mind but so they know where you are and where to collect the tax from.   I suspect this is why governments hate landlords and want "tenant-security". If the tenant is locked into living somewhere longer, they know where you are to come collect the tax.

However physical property asset investment has a very big problems - it is not very liquid - it takes time to sell property - at best weeks and realistically many months. Governments are tightly integrated into this sales process so they know what you are doing so they can tax and control you.

For example the conservative have planned to scrap the Furnished Holiday Let tax regime from 2025. So what?  That means holiday cottages will  no longer be considered a business and will be treated as tenanted property.  That means council tax will apply rather than business rates. That means councils will treat the property as a second home or empty and "discount" the council tax by potentially doubling it compared to what everyone else pays.   By treating it as a tenanted property normal allowable business expenses like interest relief are wiped out. Any profit can no longer be put in a pension.  The list of implications goes on. 

Assuming I decide to continue to provide holiday accommodation, one thing is for certain - I am going to have to increase prices to factor in all these additional taxes. I am not going to run this "business" at a loss.  Holiday makers will therefore pay more and this is inflationary.

If I decide to sell my holiday accommodation business then the regime has changed.  Previously, as this was considered a business, when selling I could get roll-over relief and various other business reliefs.  Now this is no longer considered a business and that all disappears on politicians whim.  I will now be subject to Labours planned punitive Capital Gains Tax.

Capital Gains Tax is geared toward punishing long term investment.  Say I bought an asset in 2000 for £100k. With inflation that asset would today be worth £184k.  Say I sold the asset today for £184k - I haven't gained anything - it's simply kept pace with inflation.  Yet this would be subject to £84k of capital gains tax.  The regime does not want you to invest in the long term (or rather they do so they can tax you on inflation they have caused).

So I need to ensure I dont buy immovable physical assets like property.  I need to buy very moveable and liquid assets like gold, diamonds etc. 

Secondly let other people make the mistake of holding the physical assets. If I want to invest in property then invest via REIT.  The REIT is traded on the stock market.  If I want to exit, I can probably sell it the same day or worst case within a week or two. It's a very liquid asset unlike physical property.

Unfortunately the real losers from my change in attitude is the UK. I no longer see the UK as a safe place to invest.  I suspect I am not alone in thinking like this and there will be an exodus of small investors.