09 April 2024


We have previously commented on the Conservatives proposed changes to the non-dom regime: The Budget 2024: The new regime for non-doms and their structures. This article assumes some familiarity with those proposed changes and we do not repeat them in any detail here.

Labour have now announced their plans in relation to the non-dom regime, having had to find new ways of funding their pledges due to the Conservatives effectively lifting their plans to abolish the non-dom regime. They intend[1] to fund pledges by two main means:

  • Closing the “tax gap” – the difference between tax paid and tax owed; and
  • Closing the non-dom “loopholes” which the Conservatives have announced as part of their proposals to end the non-dom regime.

Ensuring people pay the tax they owe seems politically uncontentious and is to be welcomed. Labour estimate that their planned additional HMRC funding of £555 million each year, will raise £5 billion a year by the end of parliament as a result of boosting tax compliance.

A number of Labour’s proposed changes to the non-dom regime are also to be welcomed. Encouraging tax-free investment in the UK for new arrivers, during their first 4 years of UK residence, should increase inward investment. Potentially, so could their proposal to explore ways to encourage remittance of foreign income and gains (“FIG”) beyond the expiry of the proposed 2-year period for the temporary repatriation facility (“TRF”).

Not proceeding with the 50% exemption for foreign income in 2025/26 is not entirely unexpected. Whilst some taxpayers will be disappointed by this, it is unlikely to be a “deal-breaker” for most of them. What could well be a deal-breaker is the proposed loss of inheritance tax protection for trusts. Our inheritance tax rate is high. Many other countries have low or no inheritance tax, or much higher exemptions. From our conversations with clients, a number of them have confirmed that they will leave the UK, rather than face 40% inheritance tax on assets which were often earned or acquired long before they moved to the UK. If Labour are elected, and the proposed changes implemented, it remains to be seen whether they will be as effective at raising overall taxes as anticipated, given this potential exodus of non-doms.

Closing the non-dom “loopholes”

The good

The clear winner in Labour’s announcement is their plan to consider whether there should be incentives for new arrivers to invest tax-free in the UK during their first 4 years of UK tax residency. It is perhaps surprising that the Conservatives missed this in the first place.

It looks as though Labour will keep the TRF but adapt it. They note that, after the 2-year period for the TRF, non-doms will continue to hold sizeable FIG outside the UK and there will be a significant disincentive to bring it to the UK. They are going to “explore ways to encourage people to remit stockpiled FIG to the UK, so we can end the legacy of the current non-dom rules”.

The immediate reaction to the TRF from most clients has been largely positive, and most are likely to use it to some extent. However, non-dom clients tend to have significant expenditure needs outside the UK so it is difficult to see why they would pay 12% on all of their FIG when they can pay 0% if they use it for non-UK expenditure. It is also worth remembering that clients may have already paid some tax on their FIG in other jurisdictions, or paid the remittance basis charge, so how these points are addressed will be important. 

There will be numerous options open to Labour to encourage use of those funds in the UK, including:

  • A supplementary charge, so that the rate of tax increases on later remittances of FIG;
  • A longer TRF period, but with an increasing rate. Perhaps 12% for the first 2 years; 20% for the next 2 etc.; or
  • A long-stop date after which all historic FIG still unremitted would be deemed to be remitted.

The not so good

Labour have confirmed they would not give a 50% discount for foreign income remitted during 2025/26, and they estimate not doing so will raise £600 million. Without this discount, some income will be brought forward to 2024/25 while taxpayers can still make use of the remittance basis, resulting in “bunching”. Remittance basis users can then either leave that income outside the UK and pay 0% tax, or they can look to bring it in under the TRF at 12%. One of the reasons for the transitionary discount was to avoid this behaviour. It is not clear whether the OBR figures, which are said to include “behavourial responses” to the change, include the full effect of this “bunching”.

The ugly

Labour do not intend to allow the grandfathering of excluded property status for trusts created and funded before 6 April 2025. Instead, they have confirmed that they will “include all foreign assets held in a trust within UK inheritance tax, whenever they were settled, so that nobody living here permanently can avoid paying UK inheritance tax on their worldwide estates.

The proposals are very brief and do not contain any technical detail. Legislating for this will be much more complicated than this brief statement suggests. Presumably the focus will be on the settlors’ residence, rather than the beneficiaries’ residence, as the proposal can’t be to bring all offshore trusts within the scope of UK inheritance tax, regardless of any connection to the UK. Nonetheless, even if the focus is on the settlors’ residence, it is not clear at all how the rules will apply to excluded settlors, non-resident settlors, or dead settlors. It is also not clear how the rules which apply to trusts will interact with the 10-year residence rule for inheritance tax, which Labour have indicated they will keep. There are significant complexities which will need to be considered and these complexities are almost certainly one of the reasons why the Conservatives proposed grandfathering in relation to the inheritance tax treatment of trusts in the first place.

It is helpful that Labour have provided comments at an early stage. There was already uncertainty around the proposed inheritance tax changes, due to the announced consultation. This uncertainty was increased by not knowing what stance Labour would take should they be elected. At least we now know what their view is going to be, even if it is not favourable in relation to trusts. Announcing their stance early on should avoid the very unsatisfactory position of taxpayers being encouraged by the Conservatives to establish new trusts before 6 April 2025, or adding more assets to existing trusts before that date, with Labour then being elected and announcing a change to the policy soon after. The constant “moving of the goalposts” is one of the biggest complaints we hear from clients.

Labour estimate that their proposals in relation to trusts will result in additional inheritance tax of around £430 million each year. They state this is the case even “after factoring in migration and tax planning responses”. 

It is not clear how high they anticipate these migratory responses to be. We have had numerous discussions with clients since the Spring Budget. Many of them have adapted pretty quickly to the proposed loss of the trust protections for income tax and capital gains tax, and have indicated that the loss of these trust protections alone would not cause them to leave the UK. However, it is fair to say that a significant number of them have confirmed that any loss of the inheritance trust protection for trusts would cause them to leave. Inheritance tax in the UK is high at 40%, and they are not willing to pay this rate of tax on assets which were often acquired or earned many years before they had any connection with the UK. They would prefer to leave the UK altogether. Being wealthy means it is often relatively easy for them to do so, and they are actively looking at alternative jurisdictions.


[1] ”Labour’s plans to close the Tax Gap” and “Labour’s plans to close the non-dom loopholes” released on 9 April 2024

Key contact


Catherine de Maid Partner

  • International tax and trusts
  • Head of Philanthropy
  • Succession Planning and Wills

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