The UK's Labour party has confirmed in greater detail of its stance on non-dom rules in reaction to the current UK chancellor Jeremy Hunt's substantial regime changes in the recent government Budget.
James Quarmby, partner and head of private wealth, Stephenson Harwood, said in a LinkedIn posting on 17 April that the "much talked-about policy paper has finally been released by Labour’s press office. Was it worth the wait ?".
His take on the key points highlights Labour approving of the 4 year FIG exemption for new arrivals and the IHT qualifying period of 10 years is also accepted "but, crucially, the protection for trusts will be removed, even for those created prior to April 2025".
The 50% deduction in 2025/6 will be scrapped and the temporary repatriation facility will probably be extended, he said, adding that Labour will consult on giving relief on U.K. based investment income/gains in the first 4 years.
Quarmby continued: "About 1/3 of the document focusses on the IHT treatment of trusts and explaining how their harsher policy will bring in an extra £430m pa in IHT. However, the evidence they cite for this assertion is the annoying Warwick report which, as I have noted many times before, DID NOT examine the effect of removing IHT protections in projecting tax revenues.
"So, Labour is basing its IHT projections on a study which did not examine the effect of that policy. This is the dog eating its own tail….."
Last week in an 11 April briefing note KPMG partner (family office and private client) Gavin Shaw predicted key changes in the Labour policy detail.
"We understand that Labour supports most aspects of the proposed residence-based replacement regime, including the four-year time period and, in terms of the forthcoming Inheritance tax (IHT) consultation (also discussed in a recent article), the ten-year period of residence in the UK before worldwide assets are subject to IHT. However, Labour is proposing certain changes that it expects to raise £2.6 billion over the course of the next Parliament including £1 billion in year one."
Under the proposals Labour plans to include all foreign assets held in a trust within the scope of UK IHT, whenever they were settled; and remove the 50 percent reduction in foreign income subject to UK tax in 2025/26 under the proposed transitional rules for those non-doms who are subject to UK tax on a worldwide basis from that date.
We also understand that Labour will: Consider whether there should be an investment incentive available to those individuals eligible for the new four-year regime, so that UK investment income is free of UK tax; and explore ways to encourage people to bring unremitted foreign income and gains to the UK beyond 2026/27 to encourage UK investment and end the ‘tail’ of the historic non-dom provisions.
