General election 2024: anticipated non-dom tax changes under a newly elected Labour government

Posted: 05/07/2024

The Labour Party has won an historic, albeit expected, victory, obtaining a significant majority and enabling it to form a new government. Keir Starmer may not have settled into his new accommodation yet, but eyes are already turning to what the new government will mean for the country, particularly for non-doms and new arrivers to the UK, given the previous government’s proposed changes announced at the last Spring Budget, and from a tax perspective for individuals more generally.

Labour and non-doms

Labour has been committed to abolishing the current non-dom regime for some time now. In its manifesto, it pledged to:

‘abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period. We will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here.’

Labour also broadly supported the Spring Budget changes which proposed to abolish the remittance basis and introduce a new short term residence tax regime for new arrivers to the UK. However, questions remain as to the detail, including the length of any new regime, and the transitional rules for those individuals who will lose the ability to claim the remittance basis under the new rules.  

One can hope that the newly elected government will use the next few months to implement these changes in a way which delivers on its manifesto pledge of increasing fairness in the tax system, whilst ensuring that the UK provides an attractive and competitive tax regime which encourages talented individuals and investment to the UK.

That being said, a press announcement by Rachel Reeves, the new Chancellor of the Exchequer,  on 9 April 2024 titled ‘How Labour will crack down on tax dodgers to fund our schools and NHS’, gives some indication as to how this new government will implement these changes. In relation to  transitional rules which were proposed in the Spring Budget, Labour has suggested that:

• there should be no 50% discount on foreign income for those who move from the remittance basis to the arising basis in the first year of the new rules. It expects to raise an additional £600 million from this; and
• the temporary repatriation facility (which is intended to provide a two-year window to remit foreign income and gains to the UK at a reduced rate of tax) will result in sizable stockpiled FIG overseas and disincentivise individuals bringing those funds to the UK. Therefore, it will explore ways to encourage people to remit unremitted FIG to the UK, so that it can end the legacy of the current non-dom rules.

In relation to the new short term residence regime for new arrivers to the UK, Labour has said that it will consider whether there should be an investment incentive during the four-year window, so that UK investment income is free of UK tax and not disincentivised versus investment elsewhere in the world. 

More significantly, and concerning for affected individuals, Labour has said that in relation to inheritance tax, it will include all foreign assets held in trusts with UK resident settlors within UK inheritance tax, whenever they were settled. It is assumed that the intention would be for this to apply to UK resident settlors who can benefit from such trusts, and not for example to a trust where the settlor is deceased, excluded from benefit or non-UK resident. However, as always, the devil will be in the detail. 

Given that the task of amending the trust inheritance tax regime to take account of the new residence-based regime will be technically difficult, it may take time to finalise the detail of any proposals. Any updated proposals will also hopefully take account of the results of the recent HMRC listening events on the subject, as well as the potential economic impact of such changes. As ever, reliving provisions where restructuring is necessary would be very much welcomed. 

Labour’s tax policy more widely

Whilst the Labour campaign guaranteed not to increase rates of income tax, National Insurance, VAT or corporation tax, that leaves plenty of room for raids on inheritance tax with a restriction of the rules in relation to reliefs available for business interests and agricultural land the most likely targets. Capital gains tax has also been mooted as a potential target. Pension allowances and perhaps a ‘wealth tax’ for those earning at the highest level are also being considered.  

Another policy Labour proposes relates to the ‘loophole’ on the taxation of private equity profits, known as carried interest. The term loophole is misleading given that specific legislation has been in place for many years and ultimately, the UK is on a par with how other countries tax private equity. Taxing carried interest entirely as income, or putting capital gains tax on a level with income tax, as many believe Labour may consider, would potentially make the UK less competitive. The party’s manifesto is quiet on many related areas, such as business asset disposal relief, but mooted changes should be carefully considered in light of the economic implications.  

With Parliament due to break for recess by the end of July, and Rachel Reeves stating there would be no budget until September at the earliest, we are unlikely to get any clear answers immediately. This will give limited time to prepare if changes come into force in April 2025. Despite a clear election result, we are unfortunately still in a period of uncertainty, particularly on the implications of the proposed inheritance tax changes, and those changes which affect UK resident settlors of non-UK trusts, which have been most poorly received.  

We continue to work closely with clients to assess their options in light of the election results and the potential new policies. As ever with policy changes, there will be ‘winners’ and ‘losers’ as to how the rules affect particular individuals. Generally, the message remains the same: take advice and consider whether to act now if there is planning involving sales or gifts that clients know they wish to make imminently but, otherwise, to wait for more details, while getting prepared.  

Many proposed tax changes will require clients to spend time considering their business and family circumstances, organise valuations, or establishing structures which require bank accounts and therefore time to establish (and which can be funded once details of any proposed changes have been confirmed). Preparing now and considering what actions can be taken, or what preparatory work should be undertaken in the intervening period, will make the transition easier when the time comes and will allow clients to move quickly if, as envisaged, they will be required to do so before the start of the next tax year.

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