Following the UK general election, the new Labour government is expected to follow through with the previous administration’s plan to eliminate the resident non-domicile status and the remittance basis, as reported by STEP.
The previous Conservative government had planned to offer a provision for trusts established by non-doms before April 2025, exempting these trusts from UK inheritance tax (IHT). However, Labour intends to remove this protection, as stated in their pre-election manifesto. From April 2025, all trusts settled by UK-resident settlors will be subject to UK IHT after the settlor has been a UK resident for ten years, regardless of when the trust was established. Trusts where the settlor is deceased or non-UK resident may be exempt.
The new administration is contemplating investment incentives during a proposed four-year tax-free remittance window to attract more investment into the UK. They are also considering measures to encourage individuals who previously utilised the remittance basis to bring foreign income and gains into the country, though specifics have not been disclosed.
Balancing effective taxation of non-doms without deterring potential investors and growth drivers moving to the UK will be a priority, according to law firm Mishcon de Reya. Consultation papers on these proposed changes are anticipated in the coming weeks, with the new regime likely to be enacted by April 2025. Those affected by the IHT changes, especially older or ill settlors, will be reassessing their strategies carefully, Mishcon added.
Labour’s proposal to impose VAT on private school fees, a prominent campaign promise, is expected to be swiftly implemented, potentially announced at the first budget.
Additional plans include revising the tax treatment of carried interest for private equity fund managers. Currently taxed at capital gains rates, Labour’s manifesto pledged to treat it as income, although Chancellor Rachel Reeves has hinted that private equity managers’ risk capital might still be subject to capital gains tax (CGT) rates.
According to RSM UK, a 10% increase in the higher rate of CGT could potentially reduce tax revenues by over GBP2 billion in the 2027/28 tax year due to the discretionary nature of investment disposals, which currently account for about 4% of total tax revenue.
Similar considerations apply to IHT reliefs, such as agricultural and business relief, with speculations on potential abolition or capping. RSM warns that such measures could have significant economic repercussions if large estates face substantial IHT liabilities without sufficient liquid assets to cover them.
More details are expected to be revealed in the King’s speech at the State Opening of Parliament on 17th July 2024.
