TAX: An Introduction to UK-wide

Following the election of Keir Starmer as Prime Minister in July 2024, many in the industry watched with interest to see what new measures would be introduced by the chancellor, Rachel Reeves, in order to fund his campaign pledges.

Perhaps the most well-publicised pre-election policy was the plan to remove VAT and business rates relief for private schools (there is currently an exemption for the supply of education). From January 2025, that relief is to be removed. It is anticipated that this will be the first step in an attempt to fill what is said to be a GBP 22 billion hole in public finances.

At the time of writing, the first Labour budget has not yet taken place; however, it is thought that inheritance tax (IHT), capital gains tax (CGT), fuel tax and taxes on pensions are likely to rise, with allowances also likely to be adjusted. The government announced that they propose to close the tax gap by “relentlessly pursuing the money that is owed, with a plan to make sure people pay the right tax in the first place, and directly [to] tackle tax avoidance and evasion".

Their strategy will include the recruitment of an additional 5,000 HMRC compliance officers, and a "greater use of AI" to target investigations. During the election campaign, Labour had criticised the limited number of tax prosecutions and convictions, pointing to the fact that only 11 high net worth individuals had been prosecuted by HMRC in 2022. Funding will therefore be allocated to prosecute important cases in order to send out a deterrent message, which may include the first Criminal Finances Act 2017 prosecution for failure to prevent the facilitation of tax evasion. In addition, deferred prosecution agreements (DPAs) are also likely to be considered, following the Entain DPA in December 2023 that followed an investigation launched by HMRC.

The most significant anticipated change, however, relates to the focus on offshore tax compliance. To raise an additional GBP2.6 billion, the government has announced that it intends to abolish exemptions for individuals who claim non-domicile status.

Currently, individuals who are UK tax resident are subject to UK tax on their worldwide income and gains. However, individuals who are not domiciled in the UK can choose to be taxed on foreign income and gains only when it is remitted to the UK. After 15 years, those individuals are deemed domiciled.

From 6 April 2025, the non-dom regime will be abolished entirely in relation to income and capital, although it is unclear what the approach in respect of IHT might be. Taxpayers who enter the UK following that date will be granted a four-year period of grace (even where income is remitted to the UK), following which they will be taxable on all worldwide income and gains. Eligible taxpayers will not pay tax on foreign income and gains for the first four years once they become UK tax resident after a period of ten years of non-UK tax residency.

It remains to be seen precisely how existing non-domiciled individuals will be dealt with. The initial indication was that there would be a two-year transition period. The Conservative Party had announced that those taxed on a remittance basis would be taxed on half of their foreign income in the first tax year following abolition, with an option to rebase assets to April 2019 values. However, the government has indicated that the discount will not be implemented. Planned reduced rates for remittance of foreign income and gains for the first two years are also not likely be included, and foreign assets held in offshore trusts will also be subject to UK IHT.

Time will tell whether the above measures help to plug the “black hole” in public finances. Possibly the most high-profile tax campaigner in the UK, Dan Neidle, has urged against populist measures such as a wealth tax, which he has argued would be less effective than more nuanced long-term reforms.