During a recent poll run as part of our webinar series, over 91% of attendees thought it was likely or very likely that our next government would be run by Labour. Peter Webb, our Head of Tax Advisory, takes a look at what tax changes a Labour government could consider.
Despite calls for a general election, the Conservative government is holding firm on its commitment to seeing out its term. The latest date at which an election can be called will be January 2025, another two years away. Yet it’s worth spending some time considering what a change of party would bring to the UK tax landscape.
Previously, the Labour party have indicated that several areas would come under scrutiny when it comes to possible tax changes. Rachel Reeves, the Shadow Chancellor, has noted that “people who get their income through wealth should pay more” and been clear that her targets include stocks, shares and buy-to-let properties. Keir Starmer, Labour Leader, has confirmed that “nothing is off the table” with non-domiciles, private equity managers, venture capital trusts and public schools also key areas of focus. There have also been references to that fact that every single tax relief will be reviewed.
Will non-doms be the first target?
Labour’s response to the Autumn Statement particularly criticised Rishi Sunak and Jeremy Hunt for not closing the “non-dom loophole”. Non-UK domicile status is high on the Labour agenda, but what does it all mean?
Two statuses define your exposure to UK tax:
- UK tax residence status – governed each year under the complex Statutory Residence Test
- UK tax domicile status
The concept of domicile is a complex one; it isn’t found in legislation but has been built up through case law over more than 200 years. If you are UK domiciled, you’ll typically have been born in the UK to parents also born in the UK. When this is the case, and you’re deemed UK tax resident, you’ll pay UK Income Tax on your worldwide income and gains. In addition, you’ll be exposed to a possible 40% Inheritance Tax charge on worldwide assets no matter what your UK tax resident status.
However, if you’re not UK domiciled (for example you were born outside of the UK to parents themselves born outside of the UK and have not previously been UK tax resident) then your exposure to UK tax can be quite different. In the first few years of being a UK tax resident you may be able to exclude overseas income and gains from UK tax as long as various conditions are met. In addition, only your UK assets will face UK Inheritance Tax; your overseas assets are generally excluded. So being a non-dom does bring significant UK tax advantages.
Controversially, Rishi Sunak’s wife claimed a non-UK domicile status allowing her to exclude about £11.5m in annual dividends from UK taxation from her stake in the Indian IT services company Infosys. So it perhaps comes as no surprise that non-dom status is a stated target for tax changes for the Labour party.
It remains to be seen what other tax changes could be implemented but it’s clear that significant change in the tax landscape could not be too far away if Labour succeed at the next election.
To discuss any aspect of your UK tax planning please contact your nearest office.