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During the March 2024 Budget, Jeremy Hunt unveiled his much anticipated shake up of non-dom tax policy (i.e. UK tax policy as it applies to non-UK domiciled individuals). As expected, it included proposals to dramatically reduce the tax privileges available to non-domiciled, typically wealthy, people who are living in the UK, with effect from 6 April 2025. Many of the policy details had already been publicly mooted by Labour as the main opposition party.
Since then, a date for the General Election has been set and we have not seen any further progress made on the revisions to non-dom tax policy. Parliament has been dissolved in advance of the Election and the window of opportunity to legislate the changes has been lost. It suggests that it is no longer a priority for the Conservative Party.
Labour, on the other hand, has continued to publicise its plans to overhaul the non-dom regime. They have indicated that they would implement further restrictions beyond the Conservative proposals if they came into power. Given that Labour appear to be the current favourites to win the next election, it is worth understanding what they plan to review.
This article looks at what Labour could do about non-dom tax if they win the General Election compared to the Conservative Party's plans.
Firstly, as part of their revisions to existing non-dom policy, the Conservatives were proposing to introduce transitional reliefs during a time period during which the old legislation was being phased out. Labour intends to make the transitional reliefs less generous and is planning to scrap proposals to allow existing non-doms to only pay 50% of the income tax due on foreign income received in the first year of the new regime (in the 2025/26 tax year).
Labour is also proposing a new incentive scheme which would encourage non-doms to invest in the UK as part of the new four year residency regime. Very little detail has been released to indicate how beneficial it would be in terms of exemption from tax on foreign income and gains for the four year period.
It is also possible that additional low tax rate incentives will be offered to non-doms, allowing them to bring untaxed foreign income and gains to the UK after two years; for instance, adopting existing Conservative proposals to apply a special low rate of 12% tax on this income.
Labour has confirmed that it will be changing the way trusts can be used by non-doms to shelter non UK assets from inheritance tax. This opportunity will no longer be available under any circumstances, regardless of how long the trust has existed. It may even be the case that the stricter rules will also apply to non UK trusts that were created before the settlor became resident in the UK, although there may be a timeframe around these restrictions.
Currently there is no indication from either the Conservatives or Labour whether assets remaining in trust after the non-dom rules change will be subject to inheritance tax.
It is important to appreciate that these proposals are all at the proposal stage and may never become policy. As we have seen from the Conservative’s own announcement in the 2024 Spring Budget, delays can occur, and nothing is ever fixed until it is legislated in the Finance Bill.
If you would like to discuss any aspect of tax planning, please contact us via partners@rjp.co.uk.
Learn more about what the Conservatives and Labour are intending for tax policy in our other article.
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