The UK goes to the polls on 4 July 2024
Wednesday’s announcement that there will be a General Election on 4 July 2024 will have repercussions across the UK and abroad. For those who have been keeping track of proposed changes to the taxation of non-doms and their structures it clarifies some points and muddies others.
For context, please refer back to our summaries of the key previous announcements:
What this means in the short term
Now that the election date has been confirmed we know (or it is highly likely) that:
- There will not be any draft legislation in June as had been hoped;
- The consultation on the inheritance tax changes will be delayed;
- Parliament will be dissolved on the 30th of May 2024[1] with none of the proposed changes becoming law before the election; and
- It will be clear by the end of summer which version of the non-dom changes (Labour’s or the Conservatives’) will be implemented, even if the precise details will still need to be clarified.
The big question is therefore what will happen after polling day?
One point to stress is that we still fully expect the taxation of non-doms and their structures to change. Ever since Labour confirmed that they agreed in principle with much of what the Conservatives announced, this has been a “when” rather than an “if”. The election doesn’t alter this but it does have two particularly important implications:
- It might impact when various changes take effect; and
- It means that we are only likely to get one set of changes, with that new regime then remaining in place for some time (whereas it was previously possible that the Conservatives would change the law before an election and then Labour might take power and make further changes after it).
That second point is a welcome one. Whilst there is still far more uncertainty than any client or tax adviser would like, the fact that we will know by early July whether Labour or the Conservatives will be dictating policy is helpful and should give clients more time to plan in this tax year than they would have had with a later election.
However, if clients wait until 5 July to start thinking about their situation then they may well run out of time.
When might the non-dom changes now be introduced?
It would be easy to look at the prospect of a snap election and assume that everything will now be deferred by at least a year. In our view that would be unwise.
Whilst an election clearly has a major impact on the workings of the Civil Service, it does not necessarily mean that everything goes on hold. The Treasury knows that both parties have committed to amending the law for non-doms and it has a good idea of roughly what each party’s plans look like. One can easily imagine that work on draft legislation and the like will continue in the background whilst the politicians are campaigning and that, whoever takes the keys to No. 10 later in the Summer, they will find that progress has been made on the core elements of the new regime. This is particularly true in relation to the proposals on which both the main parties appear to agree, which are numerous and include:
- Abolishing the remittance basis;
- Implementing a new 4-year regime for new arrivals;
- A transitional rebasing relief and a facility to allow stockpiled foreign income and gains to be brought into the UK at a flat rate of tax;
- Removing the trust protections (such that more settlors are exposed to income tax and capital gains in connection with their trusts); and
- Changing the criteria for inheritance tax exposure such that individuals are within the scope of UK inheritance tax on worldwide assets once they have been tax resident in the UK for 10 years (and for a further 10 years after they cease to be UK tax resident).
In other words, there is plenty that the Treasury can continue to work on whilst feeling relatively comfortable that it will prove useful regardless of what happens on polling day.
After the election there will still be just under 9 months to go until 5 April 2025. That is enough time, if the political will is there, to finalise the changes and implement them. Technically the legislation could even be passed after 5 April 2025 with a prior start date (far from ideal but also far from unheard of).
So at this stage, all three of the following remain possible:
- All (or most) of the changes will come into force on 6 April 2025;
- Some of the changes will come into force on 6 April 2025 but significant aspects are delayed;
- All of the changes will be delayed (possibly back to 6 April 2026).
In terms of their relative likelihood there are plausible arguments to support any of them, but our view is that people are generally underestimating the probability of scenarios 1 and 2.
If Labour win power they are likely to do so having mentioned non-doms frequently in their campaigning (indeed, non-doms are already referred to expressly in Labour’s “first steps for change” briefing). They could therefore arrive in office with a strong motivation to implement their promises and show quick progress. Whilst the technical challenges facing some of the proposals are significant, they are arguably less daunting than some other policy commitments and so could be seen as an attractive early step.
As for a returning Conservative Government, the changes to the taxation of non-doms are earmarked for funding tax cuts which have already been implemented and so could be seen as a key part of balancing the books (regardless of whether one agrees with the estimates for what these changes will raise in terms of revenue).
In other words, both parties might have strong incentives to get their proposals over the line if possible. That doesn’t mean it will actually happen, but it does mean that discounting the possibility is fraught with danger.
And what does all of this mean for clients in practice?
We have previously advised clients to begin looking at the various possible outcomes (i.e. what might happen under a Conservative government, what might happen under a Labour government and how various ambiguities in the announcements to date might be resolved), consider what the most important implications would be for them personally and then make plans for possible courses of action in response. Ideally, they would have a “Plan A”, a “Plan B” and so on and be clear as to when those would need to be implemented in order to have the best chance of being effective.
The election announcement does not change this in principle. In fact it potentially makes it even more important. We already know a lot about how the law is going to change, certainly enough to start sensible planning. Those who want to be well placed to respond should contact their advisers now to ensure that they are ahead of the game.
[1]General election timetables 2024 - House of Commons Library (parliament.uk)