Brexit: UK as tax haven – an opportunity for shareholders?

What has not all been connected with the Brexit in the last years? A hard landing of the British economy, a full-scale recession and a slump in the stock market. But the last-mentioned does not seem to be coming, as some indicators and capital regroupings suggest. Especially the topic of taxes seems to be a driving force. And here we already know something like that from our big brother overseas.

Brexit: The underperformance of the British stock index FTSE 100 (Footsie)

More than three years of uncertainty about the future of the UK have left their mark on the UK leading index. While the world index MSCI World has risen by over 30 percent since the beginning of 2017, the British index FTSE 100 (Footsie) is still at this level. As the profits of British companies have not collapsed, the price/earnings ratio of the shares is two points below that of the European index and three and a half points below that of the world index. This attracts international investors, especially as the uncertainty about the eternal topic of Brexit has disappeared for the time being after the December vote.

For a long time, the eternal struggle over the Brexit had kept companies from investing. But that seems to have changed.

It is predominantly Anglo-Saxon investment houses such as HSBC, Morgan Stanley and Goldman Sachs that are pushing for an entry into British shares. And some houses have already raised their quotas. This confidence is backed up by new economic data, such as the Purchasing Managers’ Index for the UK service sector, which has jumped from 50 to 53.9 points for January. In the manufacturing sector, too, the barometer has returned to the growth level of 50 points after many months of recession, and Germany, for example, is still a long way from this level.

New hope Tax reductions

But the biggest hopes are in the tax and economic programme that Prime Minister Boris Johnson wants to boost. After he took office, the prospect of higher taxes and nationalisation measures by a Labour government was off the table for the time being. The head of government plans are a reduction in corporate taxes (from 19 to 18 percent as of April 1 st) and, for example, the establishment of tax open fields based on the Singapore model. The plan behind this is, of course, to increase growth in order to boost investment, create jobs and increase corporate profits. Will this play a role in the upcoming negotiations with the EU? Britain after the Brexit as a tax haven?

Bottom line

In recent months or years, Brexit has been associated with a total decline of the British economy, a decline of the so dominant financial industry and a collapse of the financial markets. The latest data do not suggest this, although the negotiations with the EU may create much new unpleasantness. People are no longer part of the EU, but they want to keep the former trade advantages in order to use the EU payments saved for other purposes.

Boris Johnson apparently wants to take the US as a model for himself a little when it comes to tax reforms. This in turn could benefit a group of people, whether they come from home or abroad – the shareholders. The Footsie, in any case, has some catching up to do. If the British will actually participate in the internationally observed tax-cutting competition after the Brexit, a push for the stock markets could arise here. In Germany, too, a high-tax country, this demand is becoming increasingly loud. Olaf Scholz is still shutting his ears.

Trotz Brexit könnte der englische Leitindex FTSE 100 bald zulegen
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