What does a 4 July election mean for non-doms as the UK faces economic challenges?

Voters in the UK will head to polls on 4 July after PM Rishi Sunak announced the date yesterday afternoon amid sluggish growth, high interest rates and cost-of-living headwinds.

Tax cuts are set to be central to Conservative pledge on election trail despite warnings of stress on public services.

Labour pledges have a focus on housebuilding, the NHS, a green deal and renationalising transport services.

Susannah Streeter, head of money and markets, Hargreaves Lansdown said: ‘’Although some of the more severe headwinds have eased, the Conservatives will go into this election facing an electorate still struggling with the cost-of-living. Inflation has come down towards target, but it has disappointingly missed forecasts, which means prospects for an interest rate cut have been pushed further into the distance. House prices have started creeping up again, amid supply shortages in key parts of the country, which means that getting onto the ladder is still unaffordable for many young people.

"This is while others face the daunting prospect of remortgaging on much higher rates and tenants are watching rents climb at super painful rates. Growth forecasts have been upgraded for the UK this year by the IMF this week, from 0.5 to 0.7%, but it’s hardly shooting the lights out.

"The Chancellor has pledged to cut personal taxes further, with more tinkering to National Insurance looking likely, to try and stimulate growth. The latest public sector borrowing snapshot arguably offers the government even less wiggle room to bestow treats on voters. Borrowing in April totalled £20.5 billion, above the forecast of the Office for Budget Responsibility and overall borrowing for the year was revised upwards. It seems further tax cuts would come at the expense of public services. Already current government spending plans would involve a large cut to departmental budgets over the rest of the decade, according to the IFS, to meet the government’s own fiscal rules."

While James Quarmby, partner private wealth & tax at Stephenson Harwood said on LinkedIn: "You need to understand that No. 10 and No. 10 alone gets to choose when the election will be. Other departments don’t get a say, or even get consulted, including HM Treasury. This means the non dom draft legislation (such as it exists) will probably not be enacted this side of an election."

He went on to highlight a number of points including: "Any non dom concessions apparently planned by HMT will now be subject to the whim of a new government - one likely to be Labour.

"I’m now sceptical that we will see any major changes with effect from April 2025 - the new Labour government may not wish to be driven by the Tories timetable and, quite rightly, will wish to take their own path at their own pace."

In further reaction, Stuart Ritchie, managing partner of GSB Wealth, commented on several areas of impact for the wealth and investment space.

Investments

Ritchie said: “The polls indicate a significant lead for Labour. Volatility in the stock market around election time is expected, but historical trends show eventual stabilisation.

“However, uncertainty is the stock market's greatest enemy. Historically, the market tends to thrive when it anticipates a clear winner in an upcoming election. This was evident in 1997, with the market experiencing growth before, during, and after Labour's widely expected victory.

"Economic factors such as inflation and interest rates influence market returns more than election returns.”

Pensions

He said: “Both parties commit to retaining the state pension triple lock, ensuring it rises with the highest of inflation, earnings growth or 2.5%.

“Labour plans to reintroduce the lifetime allowance for pensions, potentially affecting savers with large pension pots. This is adding further complexity to a topic that needs to be simplified.

“Whichever party gets in may accelerate planned increases in the state pension age.”

ISAs
Ritchie added: “Labour aims to simplify the ISA landscape and the proposed UK ISA by the Conservatives is criticised as complex and unlikely to achieve its intended goal.”

Tax

He said: “Britian’s tax burden is the highest since World War Two.

“Debate surrounds the tax burden, with the Conservatives aiming to reduce social security contributions while Labour proposes VAT on private school fees and taxation of overseas income.”

Non-Dom

“The Labour Party first proposed to abolish the non-domiciled tax status, a system allowing wealthy foreigners living in the UK to avoid paying taxes on overseas income and gains.

“However, the government announced plans to end non-dom tax status in the Spring Budget 2024, requiring non-doms to pay taxes after four years. Labour supports this move but intends to further close inheritance tax loopholes for non-doms, emphasizing the importance of tax fairness and discouraging tax evasion.

“But the Finance (No 2) Bill was scrutinised by the Public Bills Committee on 21 May, and it was anticipated it would pass that committee by 24 May. It then has to go to the report stage and 3rd reading in the House of Commons, before heading to the House of Lords to be voted on. However, due to the announcement of the election, UK Parliament is now likely to be dissolved by 30 May.

“That means that anything controversial within the Budget that could get 'stuck' in the House of Lords may now end up getting removed from the Bill to ensure that the necessities of the Bill become statute before Parliament rises. It will then be for the new Government to re-introduce the legislation (if they so choose) in a new Finance (No 3) Bill.”