Labour government announce non-dom tax regime changes

The new Labour government, somewhat unexpectedly, published a number of tax policy papers and consultations on 29 July 2024 as it was announced that a budget will be held on Wednesday 30 October 2024. Among the policy papers is a document which provides some further clarity on how the new Labour government intends to reform the taxation of non-UK domiciled individuals.

The policy paper came after Rachel Reeves, in her new role as Chancellor of Exchequer, addressed the House of Commons on 29 July 2024 and set out plans to “restore economic stability” following the discovery that the new government has purportedly inherited “a projected overspend of £22 billion” from the previous Conservative government.

There were some indications on how Labour would deviate from Jeremy Hunt’s, the previous Chancellor of the Exchequer, announcement that he would abolish the tax regime for non-UK domiciled individuals at the Spring Budget on 6 March 2024. We previously commented on these changes and the new proposed foreign income and gains (FIG) regime in an article published shortly thereafter. This new policy paper now provides some further clarity on Labour’s plans.

What changes have been announced by the government?

Firstly, the government has confirmed that it intends to implement a four-year foreign income and gains (“FIG”) regime from 6 April 2025, broadly in line with that announced by the previous Conservative government. The new regime will exempt foreign income and gains from UK tax for the first four years of UK residence where individuals move to the UK after at least ten years of non-UK residence. FIG that arise prior to 6 April 2025 and shielded from UK tax under the current remittance basis will be taxed when remitted to the UK.

The Labour government will also implement the proposal for a Temporary Repatriation Facility (“TRF”), allowing former remittance basis users to remit FIG arising before 6 April 2025 at a reduced rate for a set period. However, both the remittance tax rate (previously announced to be 12%) and the period (previously announced to be two tax years) during which the TRF will be available will be confirmed later. While the government intends to retain a form of Overseas Workday Relief, it will confirm details at the next budget on 30 October 2024 and set out how the relief will operate. Labour will also introduce a rebasing of foreign capital assets for previous remittance basis users but, whilst the Conservatives proposed a 5 April 2019 rebasing date, the Labour government are still considering an appropriate date and will announce details on 30 October 2024.

Some of the main changes to the previously announced regime under the previous Conservative government include:

• The government will not introduce the Conservative proposal for a tax exemption covering 50% of foreign income arising in the first tax year where a non-UK domiciled taxpayer fails to qualify for the new FIG regime and moves to the arising basis of taxation.
• The government is considering extending what will qualify under the Temporary Repatriation Facility to potentially include income and stockpiled gains in overseas structures.
  The rebasing date of foreign assets may not be 5 April 2019 after all, as the government has said it is considering the appropriate date to use.
• The government will undertake a review of certain anti-avoidance legislation, primarily focused on the “Transfer of Assets Abroad” and the “Settlements” provisions. The government do not anticipate implementing any changes until at least 6 April 2026.
• The government will introduce a new residence-based inheritance tax (“IHT”) regime from 6 April 2025 and has confirmed that it will not consult formally on these changes. It is expected that foreign assets will be within the scope of IHT where an individual has been UK resident for ten years prior to a chargeable event and, subsequently, for a period of ten years after leaving the UK.
• The government intends to end the favourable tax treatment enjoyed by “excluded property trusts” with details being announced on 30 October 2024. But it acknowledges that this will affect people who have already set up structures based on current rules and will consider how transitional rules may be implemented for such people – implying that the effect of the changes will be mitigated for trusts already in existence.

While the government is not inclined to undertake formal policy consultations on a number of these proposals, it indicates that “separate engagement sessions” will be held on the overseas workday relief and inheritance tax proposals alongside any draft legislation, all to be announced in due course.

What this means for non-doms?

We expect that full details concerning the various proposals will be published at Rachel Reeves’ first budget on 30 October 2024 with draft legislation and, given that opportunities to engage with HMRC look to be limited, we do not expect major deviations from these policy announcements.

While the Labour government appear to be closing some perceived “loopholes” as was previously indicated, many clients may take reassurance from the announcement that those who have previously set up excluded property trusts may get some transitional rules that mitigate the potential exposure to inheritance tax on the value of assets in such trusts. In addition, the fact that the government will retain the Temporary Repatriation Facility but appear open to extending it beyond personally held income and gains and the previously announced two-year period from 6 April 2025, may offer some comfort and give more time for people to take advantage of it.

However, it is disappointing that the government appear to be intent to press ahead so rapidly with the IHT proposals generally and seem to have accepted a ten-year UK residence period as reasonable without any formal consultation process. It is likely that the reason for this decision is to bring the changes into force as soon as possible, but only time will tell whether this is a wise approach. Long-term residents will need to consider their IHT exposure under the new regime sooner rather than later given how matters are developing.

The review into certain offshore anti-avoidance legislation was unexpected and it will be interesting to see how this progresses. The indication is that the review is intended to “modernise the rules” and “remove ambiguity and uncertainty” as opposed to completely reform these complex provisions or expand their scope.

How can Moore Kingston Smith help?

As the policy paper indicates a number of changes to non-UK domiciled individuals and the proposed new FIG regime from what was previously announced by the Conservative government, clients may be considering how these announcements will affect their current tax position and future plans. If you want to discuss how these changes may affect you, please contact Joseph Adunse or your usual Moore Kingston Smith contact.