The British political system consists of a Parliament of two houses: the House of Lords and the House of Commons.
When they make new laws, the King must then give his approval, making it a three-stage process.
(Though, in practice, neither the late Queen nor the current King has ever vetoed a law passed by Parliament – it’s just a formality).
Recently, the UK has seen a shift in leadership with the election of Sir Keir Starmer from the Labour Party as the new Prime Minister of Great Britain and Northern Ireland.
Sir Keir, seated in the House of Commons, is poised to drive many changes in laws, legislation, and tax policies over the next five years.
As a leader of a left-wing party, he is probably inclined to increase taxes on wealthy individuals and has expressed intentions to further reform the non-domiciled (non-dom) regime, which was previously adjusted by the Conservative Party earlier this year.
Labour’s planned reforms to non-dom rules
In early 2024, the Conservative Government, under then Prime Minister Rishi Sunak, introduced major changes to the UK’s non-domiciled (non-dom) rules, drastically curtailing tax advantages for those residing in the UK after relocating from abroad.
These changes take effect on 6 April 2025.
On 9 April this year, the Labour Party, as the opposition party at the time, declared its intention to implement even stricter non-dom regulations if it assumed power.
Now leading the Government, Labour intends to abolish the transitional relief that permits existing non-doms to pay income tax on just 50 per cent of their foreign income in the first year (2025/26).
They also propose incentives to boost UK investment under a new four-year residency scheme, though details remain vague.
Furthermore, Labour suggests maintaining a 12 per cent tax rate for non-doms bringing untaxed foreign income to the UK after two years, potentially extending this benefit.
A major proposed change is that trusts established by non-doms will no longer shield non-UK assets from Inheritance Tax, regardless of when they were created.
This could apply even to trusts formed before the settlor became a UK resident, although assets might remain exempt until the settlor has been a UK tax resident for ten years.
Labour’s goal is to use the increased tax revenue from non-doms to bolster public spending, especially for the NHS, despite concerns about the long-term impact on the mobility of wealthy non-doms.
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 could significantly affect you.
Firstly, the elimination of transitional relief means that existing non-doms will not benefit from the Government’s plan to tax only 50 per cent of foreign income in the first year of the new regime.
Instead, you may face full taxation on all foreign income from April 2025, raising your tax burden sooner than expected.
As mentioned earlier, the most notable change is the proposed removal of Inheritance Tax protection for non-UK assets held in trusts created by non-doms.
This change could expose your assets to Inheritance Tax much earlier. However, if you set up trusts before becoming a UK resident, you might still enjoy a ten-year exemption period.
This is not guaranteed, however.
Given these potential changes, many of you will need to re-evaluate 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 strongly recommend consulting a tax adviser familiar with the evolving UK non-dom regulations to optimise your financial position.
Historically, Labour has taken a stringent approach to tax privileges, so it is wise to review your tax strategies thoroughly.