The Impact of the Election Result on Non-Doms

The Chancellor announced radical reforms to the taxation of non-doms in March 2024. Last month, the UK Prime Minister surprised everyone by announcing that there would be a General Election on 4 July 2024 which will impact the passing of the proposals into law.

A brief overview of developments

The Chancellor announced changes in the Budget on 6 March (see our update here).

Labour’s response in April may provide an indication of what we could expect if they win at the General Election. Labour supported most aspects of the announcement. However, with two notable points.

• The Chancellor had said that excluded property trusts established before 6 April 2025 would be sheltered from inheritance tax. Labour said that they would not allow such trusts to be sheltered where the settlor becomes subject to inheritance tax.
• A transitional provision that was proposed by the Chancellor was that there would be a 50% reduction in foreign income subject to UK tax in 25/26 for those who were claiming the remittance basis but fall to be taxed on a worldwide basis under the new rules. Labour said they would not include this relief.

HMRC started consulting the public about the non-dom proposals in May. The Government had said it wanted to have legislation published (and hopefully passed) this summer.

Where does the General Election leave the proposals?

The election has brought Parliamentary business to an end and only a handful of bills were passed. Some measures announced at the Budget in March were passed but not the non-dom reforms. These changes will have to be passed by the new Parliament, after the General Election.

What happens after polling day?

It seems that there are three options.

1. The reforms are brought in announced.
2. The reforms are brought in with some changes.
3. No changes are made leaving the taxation of non-doms as it currently stands.

Option 3 would seem the least likely as both the Conservatives and Labour (who many pollsters are predicting to win the election) have been talking a lot about the reforms. The Conservatives have earmarked changes to non-doms for funding tax cuts and Labour have frequently mentioned non-doms in their campaigning.

As mentioned, HMRC has begun work on the changes and we imagine that they will continue, given the appetite from the Conservatives and Labour for non-dom reforms. However, it remains to be seen who wins and the appetite to change the proposals as announced.

Timing of changes

It is difficult to predict the timing of any changes being implemented. The following are possible.

1. All or most changes come into force on 6 April 2025.
2. Some changes come into force 6 April 2025 with more difficult aspects delayed.
3. All changes delayed, possiblly to 6 April 2026.

Whilst many might prefer the delay in option 3, the first two options are definitely possible depending on what else is on the winning party’s agenda.

What to do next?

It is difficult to plan when we do not know the rules and timing. It is important that you keep updated on the proposals, consider the possible outcomes and implications for you and have in mind various plans, together with timings.

Planning could be particularly relevant for:

• Non-doms claiming the remittance basis but who would not fall to be taxed on a worldwide basis;
• Non-doms who might be subject to inheritance tax under the 10 year residence rule; and
• UK resident settlors of trusts that are not currently within the scope of IHT.