The Labour Party have made no secret of their displeasure at the ability for non-UK domiciled individuals to - in their view - reduce their UK tax obligations, by taking advantage of certain protections offered to them.

It is likely that sweeping changes to the taxation of non-UK domiciled individuals will make up a significant part of their UK tax policy should they form the next government in the UK.

By making the announcements on the proposed changes in his March Budget, it is clear that Jeremy Hunt wanted to take some of the wind from Labour’s sails.

As a result, in their hard-to-find policy paper, Labour have responded to the Budget, and made further proposals that they will seek to enact once in power.

Budget 2024 - a reminder!

As a quick reminder, in March, Jeremy Hunt, Chancellor of the Exchequer announced significant changes to the taxation of non-UK domiciled individuals, including:

• Reducing the timeframe where individuals are able to benefit from shielding their non-UK income and gains from a maximum of 15 years, to a maximum of four years;
• The ability for individuals eligible for the Foreign Income and Gains (FIG) regime to remit unlimited income and gains to the UK in the first four years after arriving in the UK.
• FIGs arising in non-UK settlor interested trusts will be taxable on the settlor on an arising basis (where the settlor does not qualify for the new FIG regime);
• A 50% discount on foreign income subject to UK tax in 2025/26;
• A further transitional arrangement and a two year period in which previously shielded foreign income and gains may be remitted to the UK at a lower rate of tax (proposed to be 12%);
• Subject to a consultation, an individual coming to the UK will be out of the scope of UK Inheritance Tax (“IHT”) for up to 10 years following arrival.

What do Labour think?

Labour say that, they support “most” areas of the changes announced, and support “in principle” the 10-year window for IHT for new arrivals to the UK, they note that “loopholes” remain and, as such propose that:

• The 50% discount on foreign income in 2025/26 would not be included as a transitional provision.
• Excluded property trusts (broadly trusts settled by non-UK domiciled individuals using non-UK situs assets) would no longer be outside of the scope of UK IHT. This would include trusts settled prior to 5 April 2025.

Additionally, it has been suggested that they will introduce legislation to encourage investment into the UK by individuals, by exploring ways to encourage remittance of stockpiled FIG after the end of the two-year transitional period and by potentially allowing for some UK investment income received by qualifying individuals to be free of UK tax.

When will these changes take effect?

We are expecting draft legislation in the Finance Bill in the early Summer. We will then be in a better position to be able to advise on how the new legislation is expected to operate. This would likely be effective, on 6 April 2025, subject to there being sufficient parliamentary time available.

Whether the changes Labour are proposing would be able to be introduced will depend on the timing of a general election. This must happen in January 2025, at the latest, and an emergency budget will likely immediately follow.

The IHT changes are to be subject to a consultation, and it is not expected that any changes will be effective before 6 April 2026.

What we think

The Labour policy paper is rather vague, and some of the predictions on the amount of tax that they may raise is flawed (for instance, the suggestion that the ‘average’ non-dom has £63m of assets).

Additionally, Labour are walking a fairly tight line with the rhetoric used; repeatedly referring to ‘tax dodgers’ and ‘loopholes’. Whilst this may excite their voter base, it is likely to have the opposite effect, and alienate those wealthy individuals who do contribute a significant amount of tax revenue to the UK Exchequer. 

Although this may not be the final policy adopted if they form the next government in the UK, it is, nonetheless, useful in providing an insight into the thinking of the Labour party, and the general direction in which non-dom matters are moving. 

To the extent that they haven’t already, non-doms must start considering their options as a priority. Get in touch with your usual Sanctoras contact, or any of the team, for an initial confidential discussion.