Labour Government’s Policy Paper on Non-Dom Tax Changes: Key Highlights and What to Expect
The Labour government recently published a policy paper on 29 July 2024 which was updated on 8 August 2024, outlining its approach to the non-dom tax changes initially proposed by the previous Conservative administration in March 2024. As anticipated, the new government intends to implement these changes in the upcoming tax year, though with some adjustments.
While the paper provides an overview of Labour’s intentions, it is relatively light on specifics. The detailed rules and their application are expected to be unveiled during the Budget on 30 October 2024. Below, I summarise the key changes and noteworthy comments from the policy paper.
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Key Changes to Non-Dom Taxation
- Introduction of the 4-Year Foreign Income and Gains Regime
This new regime will replace the current remittance basis of taxation. The shift marks a significant change for non-domiciled individuals, who have traditionally benefited from being taxed only on UK income and gains during their period of UK tax residence unless they chose to remit foreign income to the UK. - Inheritance Tax (IHT) Based on Residence Rather Than Domicile
The current system, where inheritance tax is largely dependent on an individual’s domicile status, will be replaced by a system based on whether a person is UK tax resident.
Labour’s Adjustments and Comments
While Labour had indicated support for the broad direction of these changes, the policy paper introduces some nuanced positions that could influence how the reforms are implemented:
Excluded Property Trusts
Initially, the Conservative government stated that Excluded Property Trusts established before the new rules come into effect would retain their status. Labour had previously contested this, but the policy paper suggests a more measured approach: “The government recognises that trusts will already have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes.” We will need to await the Budget for more clarity on how these trusts will be treated.
Temporary Repatriation Facility
The paper introduces a new facility allowing individuals who were taxed on the remittance basis to bring foreign income and gains that arose before the new rules at a reduced rate. However, further details on this facility are yet to be provided.
No Transitional Reduction for Foreign Income
The Conservative government had proposed a 50% reduction in foreign income tax for individuals losing access to the remittance basis in the first year of the new regime. Labour, however, has decided not to implement this transitional arrangement.
Review of Transfer of Assets Abroad and Settlements Legislation
The government has announced a review of the Transfer of Assets Abroad and Settlements legislation, which affects the taxation of non-UK individuals and entities. Given the complexity and sometimes uncertain application of these rules, it will be important to monitor any proposed changes closely. In any case, the government are giving themselves a longer timeframe for the review; they said any changes are unlikely there would be any changes before 6 April 2026.
Looking Ahead to the Budget
The Labour government’s policy paper indicates a commitment to implementing the non-dom tax changes, albeit with some potential modifications. The full details and implications of these reforms are likley to be revealed in the upcoming Budget on 30 October 2024. As we approach this date, it will be critical for individuals and advisors to stay informed and prepared for the forthcoming changes.
For those interested in a deeper dive into the Labour government’s policy paper and its implications, I encourage you to reach out to me via my email.
