What does an election mean for non-doms?
Some tentative predictions around what whichever Government is returned on 5 July might do with regard to the non-dom proposals
Tentative predictions on what whichever Government is returned on 5 July might do with
Introduction
Readers will be aware by now that Rishi Sunak has announced that there will be a General Election on 4 July 2024. Since this announcement there have been some policy announcements from both parties but, unsurprisingly, the main focus has not been on the taxation of ‘non-doms’. So, it may be hard to discern what, if any, impact an election will have on the changes to non-doms. We do, however, have some limited information to help us.
The level of detail available on the changes to non-doms has not really changed since the technical note was published by the Government at the time of the Budget in March. More recently, HMRC have been holding ‘listening sessions’ to gather comments and queries from interested parties, including professionals and KPMG in the UK has been participating in these. These sessions have now been ‘paused’ until after the election. This may well also mean a delay in the publishing of any draft legislation which will, unfortunately, extend the period of uncertainty around the details of these changes.
Despite this uncertainty, we can make some tentative predictions around what will happen to the non-dom proposals, whichever Government is returned on 5 July.
A future Conservative Government
It seems reasonable to assume that, should the Conservative party be returned to Government, the changes, along the lines announced, will then continue at pace – although there may perhaps need to be some delay to implementation, given that there is now a pause in development. It is always possible, however, that arguments presented by other political parties over the course of the election campaign may move the dial on some of the policy – remember that George Osborne reportedly introduced the changes to non-dom taxation in 2017 following the perceived popularity of Labour’s plans for reform in this area.
A future Labour Government
Should the Labour Party win the next election we understand that it also plans to introduce reforms, but that it intends to make some changes to the Government’s proposals. Since this is the outcome which may potentially result in changes to policy, the rest of this article focusses on Labour Party policy. This should not, however, be taken as any comment on the likely result of the election, and of course policy could still evolve as the build-up to the election grows.
We understand that before the election was called, Labour proposed four significant changes to the Government’s proposals. First, as opposed to the current proposals which will allow all trusts established by non-UK domiciled individuals prior to 6 April 2025 to continue to benefit from excluded property status, Labour proposes to remove excluded property status for all trusts so that non-UK property would fall within the scope of UK inheritance tax (IHT). It is not clear precisely how this will be implemented, and which trust assets would come within the scope of the UK IHT net. For example, will tax status depend only on the residence of the settlor, or will the residence of the beneficiaries also be important? When will the residence of the settlor be considered? For example, will residence be relevant only when the trust is established; or at the time of any anniversary or exit charge; or both? How will this interact with the existing gift with reservation rules for settlor interest trusts and what will the position be after the settlor is dead?
We also understand that any Labour Government would not proceed with the proposed 50 percent reduction in foreign income subject to UK tax in 2025/26 which formed part of the Government’s proposed transitional rules for non-UK domiciled individuals who will become subject to tax on a worldwide basis from that date.
However, on a more positive note for those affected, it seems that the Labour Party will wish to consider whether there should be an investment incentive available to those individuals eligible for the new four-year foreign income and gains regime, so that UK investment income would be free of UK tax. We also understand that it would explore ways to encourage people to bring unremitted foreign income and gains to the UK beyond 2026/27, which suggests that some form of transitional repatriation facility may still be introduced.
More known unknowns?
The delay to finding out more details of the proposals is sure to be frustrating for many of those affected. To add to that, the election brings further uncertainty – around who the future Government will be and regarding any changes it may or may not make to the proposals. Although we do expect the political parties to release their election manifestos in the coming weeks, it seems unlikely that there will be much further detail in these.
In a sense then, this may seem to delay the time before those affected can take any action. However, it should be a reason for them to stay close to their advisors and to consider how any proposals might apply to their existing assets and structures, particularly since although on a positive note we will have a Government in place earlier than many expected ahead of the proposed April 2025 implementation date, there remains potential for the detail only to become known very close to any changes becoming law.
