Labour’s UK – You’ll never leave?
Introduction
For years, HMRC has generated money from Accelerated Payment Notices (“APN’s”), tax schemes and measures like the loan charge (albeit collection of the latter has been a little elusive).
It has been like shooting fish in a barrel.
But, the reality is that there aren’t any tax schemes left. The easy money has gone.
The barrel is empty.
So, what next?
One of my best bets is that a Labour government will make it more difficult for people, and just as importantly, their money, to leave the UK.
Non-doms
The opening salvo against non-doms was launched, not by Labour, but by the Tories.
In a move more drastic than anticipated, the Chancellor announced plans in the Spring Budget to replace the current “remittance basis” of taxation for non-UK domiciled individuals with an “exemption regime” based on residence from April 2025.
Under the new system, non-doms coming to the UK (and have not been tax resident for the last ten years) will enjoy a four-year exemption from UK tax on foreign income and gains, after which they'll be taxed like other UK residents.
However, never to be outdone when it comes to ‘cracking down on tax dodgers’ the Labour Party has signaled its intention to limit benefits even further.
Some of the transitional reliefs, like the proposed 50% income tax relief for 2025/26, may not see the light of day if Rachel Reeves has her way. However, instead, new residents might benefit from certain incentives, such as tax reliefs for UK investments and measures to encourage the repatriation of offshore income and gains by previous remittance basis users.
More significantly, it is suggested that trust arrangements may no longer shield long-term UK resident non-doms from inheritance tax starting April 6, 2025. This will prompt many to reconsider their residency status before this date or even before the anticipated general election.
Residence
Donald Trump, of course, built a wall (or at least intended to do – not sure whether he did!) to keep people out. Our own government has been obsessed with keeping out the small boats.
However, I expect that HMRC will try and build a wall around the UK to keep wealthy individuals and, more importantly, their wealth in the UK. This might be done by better patrolling the question of residence status and, perhaps, opening more enquiries into those claiming non-residence particularly where there are decent sums involved.
Indeed, a Labour Party government might seek to further restrict the amount of time one can spend in the UK without becoming UK resident. This might be likely because a natural response to the changes to the non-dom rules will be for those affected to sit outside the UK and parachute back into the UK for as many days as possible.
There is plenty of tinker room here.
Of course, the result being more UK residents and a broader personal tax base.
Pension funds
I think large pension funds will also potentially be in the cross hair as well.
In terms of international pensions, transfers to QROPS already suffer an overseas transfer charge of 25% in certain circumstance. It seems to me quite possible that this could be extended for all transfers of pension funds outside of the UK, where the value exceeds a certain amount.
What about a one-off tax charge on ANY pension fund over, say, the lifetime allowance?
Again, it is easy meat and will be taken from those with, purportedly, the broadest shoulders.
Of course, I am sure that any MP’s would be insulated from any changes.
Wealth tax
Don’t we already tax wealth?
Yes, of course.
The UK currently taxes:
transfers of wealth in lifetime and death through Inheritance Tax (“IHT”);
the capital return from wealth through Capital Gains Tax (“CGT”); and
income returns from wealth through income tax.
Further, we also commonly tax property purchases through Stamp Duty Land Tax and also we have (less commonly) the Annual Tax on Enveloped Dwellings (“ATED”).
However, we do not have a tax that is simply levied because you have wealth.
Thomas Piketty, the influential French economist has called for a wealth tax of 5% where net fortunes exceed €2 million right up to 90% for those with a net worth of worth more than €2 billion!
In the UK, a report by a group called the Wealth Tax Commission (“WTC”) in December 2020 stated that the current suite of wealth taxes is “dysfunctional”. The WTC is simply a self-established group of individuals, including academics, professional pollsters and tax barristers (such as Emma Chamberlain OBE).
The WTS has conducted substantial research into the issues around wealth taxes, including how they operate around the world and the public’s attitude to wealth taxes. Indeed, this report is not only weighty in its own right – but is supplemented by a number of other substantial research papers available on its website.
Based on a rate of 5% (spread over 5 years), a one-off tax on excess wealth:
over £500k would reportedly raise a stonking £260bn;
over £2m, then the tax take would be £80bn.
This is a compelling amount of money and one can see how it would appeal to a left-leaning government.
Of course, any wealth tax would need to take into account the possibility of those it is targeted at simply upping sticks and leaving.
However, perhaps surprisingly, Labour has ruled out any wealth tax if, and more like when, it comes to power.
One must take this with a pinch of salt as, once in power, with most of the general population seemingly in favour of a tax (largely paid by others), the goalpost could well shift if the cupboard remains bare.
Conclusion
With the low hanging fruit long gone, HMRC will be left staring at a barrel without many fish to take a pot shot at.
As such, the government will need to get creative with its policies going forward and HMRC might have to patrol more difficult areas of the legislation.
With the benefits of non-domicile facing the kybosh and the UK system becoming wholly determinative on the basis of residence – don’t be surprised if HMRC and the Government patrol this fiscal border more closely.
Like the fictional town of Royston Vasey – you may never leave!
