The Labour party has released its manifesto promising change.
There are a number of key pledges in the manifesto:
- Abolition of the non-dom regime: Labour had already introduced its counter-proposals to the Chancellor's surprise announcement at the Spring Budget that the non-dom regime would be abolished. Labour's manifesto confirms that position, saying that the funds raised from abolishing the existing regime will go towards reducing NHS waiting times. Labour has said that it will replace the existing regime with a modern system "for people genuinely in the country for a short period". Whether a "short period" matches the Conservatives' proposal of four years, or a longer period which better competes with other countries who seek to attract overseas wealth and investment, is not yet known.
Labour's manifesto suggests that changes to the regime will apply from 6 April 2025. This does not give much time for Labour, if successful, to introduce the rules. People living in the UK will be desperate to know what the new rules might look like so that they can plan for their and their families' futures. The Conservatives had already started the consultation process on their proposed changes, but they had not released legislation ahead of the election announcement. All in all this leaves a very unsatisfactory position for non-doms.
We understand that countries with competitive inbound investment regimes, such as Italy, Greece and Dubai, amongst others, have seen an increase in high-net-worth arrivals, many of whom would have included the UK previously as a target country, but who changed their plans following the current Chancellor's announcement to abolish the existing regime. The uncertainty of what might be imposed, combined with the fact that no party is offering a workable visa option to attract entrepreneurial individuals willing to invest in the UK's infrastructure, means that the UK may become a less appealing destination at least in the short term. As we noted in our briefing on 11 April, it appears that there may be some concessions that the Shadow Chancellor is willing to introduce and we look forward to seeing the detail of the proposals and the opportunity to take part in the consultation should Labour win the next election.
- Tax treatment of non-UK trusts for non-doms: Unlike the Conservatives' proposals announced by the Chancellor on 6 March, Labour has said that it will prevent non-doms from using existing inheritance tax (IHT) shelters in the form of excluded property trusts and make all offshore trusts created by non-doms subject to IHT. The manifesto includes no detail on whether there will be a grandfathering period for existing trusts. As we have previously said, the Conservatives' deliberate plan to retain the IHT shelter provided by excluded property trusts (for such trusts created before April 2025), enables non-doms who have been in the UK for a while (but under 15 years) to protect their non-UK assets from IHT. Without this period of planning or grandfathering, it is likely that many non-doms will leave the UK, taking their spending, investment, businesses, and employment with them. The uncertainty will worry non-doms who will be unclear on the taxation of the structures that may have been in place for many years.
- Carried interests – alignment with income tax: The Labour manifesto includes the pledge to 'close the loophole' that enables carried interest to be taxed as income; it is currently subject to capital gains tax treatment. This position may have a significant impact on the private equity industry in the UK, especially given that many non-doms work in the industry and may feel like Labour's pledge to abolish the non-dom regime combined with their pledge to change the tax treatment of carried interest is a step too far.
- Increase in the SDLT non-UK resident surcharge: Labour has proposed increasing Stamp Duty Land Tax on the purchase of residential property by non-UK residents by 1%. The existing non-UK resident surcharge has not significantly deterred high-value property investment from abroad to date, and we do not consider this increase is likely to.
- Private school fees: After being anticipated for so long, it is now absolutely clear that Labour will introduce VAT on independent school fees and end business rate relief. What is not yet clear is when and how the changes will be introduced, which makes it very difficult for families and schools to plan. It is inevitable that some independent schools will not survive.
- Tax avoidance: Labour proposes to modernise HMRC and change the law to tackle tax avoidance through strengthening HMRC’s powers, increasing registration and reporting requirements (with a renewed focus on tax avoidance by large businesses and the wealthy), investing in new technology and building capacity within HMRC. To do so, Labour proposes to invest an extra £855 million per year into HMRC. Whilst more powers may be welcomed by HMRC officers, it remains to be seen whether the additional responsibilities will require more significant funding, noting that running HMRC cost £4,998 million in 2021/22 and many HMRC offices have been closed since then.
And what doesn't the manifesto include?
- Capital gains tax: Unlike the Conservative manifesto, there was no reassurance that capital gains tax rates, would not be increased. Despite media speculation, there was no pledge to align capital gains tax rates with income tax rates in the Labour manifesto; this will provide some certainty to investors.
- Inheritance tax: The Labour manifesto does not mention inheritance tax (IHT) (save for in relation to non-doms as above), whereas the Conservatives reassured the electorate that Business Property Relief and Agricultural Property Relief would remain, albeit they did not say that the reliefs (both very generous) would stay unchanged. This silence on IHT is interesting in light of the Shadow Chancellor's paper 'The Everyday Economy', published in 2018, in which she says that IHT needs to be changed "wholesale" or "reset". The manifesto gave no indication that the tax will be reviewed in the future but, should Labour win the election on 4 July, it could be a topic that comes up at some point during the next Parliament, if not at the first fiscal event of the new Government.
The manifesto includes a pledge to "publish a roadmap for business taxation for the next parliament which will allow businesses to plan investments with confidence". This is vital as lack of clarity and uncertainty is a cause of investment stagnation. Capping corporation tax at 25% for the next parliament gives businesses certainty. However, private individuals also need certainty – founders want to know their personal tax exposure not just the exposure of their business. Whatever happens on 4 July, we hope that fiscal measures will be taken that at least provide clear pathways to enable both individuals and businesses to plan with confidence.
The Shadow Chancellor has already said that, should Labour win the election in July, there would not be any major fiscal event until at least September 2024, confirming in the manifesto that "every fiscal event making significant changes to taxation or spending will be subject to an independent OBR forecast". If Labour wins, we can expect changes based on that timeline.