The British political system can look quite complicated from the outside.
We have two houses within our Parliament – the House of Lords and the House of Commons – and all new laws must be approved by the King.
So, it’s a three-stage system, effectively.
(Although, the late Queen and current King have never actually refused to sign off on any law that was passed by the Houses, and this is more of a formality).
Having said that, you may have seen recently that the UK elected a new Prime Minister – Sir Kier Starmer of the Labour Party.
He sits in the House of Commons and is the primary vehicle through which we will see laws, legislation and tax policies change for the next five years.
As a left-wing party leader, he is more likely to raise taxes on high-wealth individuals and has already said he wishes to make further changes to the non-domiciled (non-dom) regime that was previously altered by the Conservative party only this year.
Labour’s proposed changes to non-dom rules
In early 2024, the Conservative Government, led by then Prime Minister Rishi Sunak, proposed radical reforms to the UK’s non-domiciled (non-dom) rules, significantly reducing tax privileges for individuals living in the UK after moving from other countries.
This starts on 6 April 2025.
On 9 April this year, however, the Labour party, the opposition party at the time, announced that they would impose even stricter regulations on the non-dom regime if they came to power.
Now that they are indeed at the head of Government, Labour plans to eliminate the transitional relief allowing existing non-doms to pay income tax on only 50 per cent of their foreign income in the first year (2025/26).
They also propose incentives to encourage UK investment within a new four-year residency regime, although specifics remain unclear.
Additionally, Labour has suggested maintaining a low tax rate of 12 per cent for non-doms bringing untaxed foreign income to the UK after two years, potentially extending this incentive.
A significant change is that trusts created by non-doms will no longer protect non-UK assets from Inheritance Tax, regardless of when established.
This could apply even to trusts set up before the settlor became UK resident, although assets might stay exempt until the settlor has been UK tax resident for 10 years.
Labour aims to use increased non-dom taxation to fund public spending, particularly for the NHS, despite concerns about the potential long-term impact on wealthy non-doms’ mobility.
What does this mean for you?
If you are a non-dom currently in the UK or considering non-dom status, Labour’s proposed changes carry significant implications.
Firstly, the removal of the transitional relief means that existing non-doms will not benefit from the Government’s proposal to tax only 50 per cent of foreign income in the first year of the new regime.
Instead, you may face immediate full taxation on all foreign income from April 2025, increasing your tax liability sooner than anticipated.
As previously mentioned, however, the most substantial change is the proposed removal of Inheritance Tax protection for non-UK assets held in trusts created by non-doms.
This potentially exposes your assets to Inheritance Tax much earlier but if you set up trusts before becoming a UK resident, you might still benefit from a 10-year exemption period
This is not guaranteed.
We think that, given these potential changes, many of you will need to reassess your financial and tax planning strategies.
You may need to consider the timing of your income realisation and the structuring of your investments to mitigate the impact of these reforms.
We highly recommend speaking to a tax adviser who understands the evolving UK non-dom regulations to optimise your financial position.
Labour, historically, has taken a firm stance on tax privileges so it’s probably time to think about your tax strategies in depth.
