Market leading insight for tax experts
View online issue

Labour’s reaction to the non-dom proposals

printer Mail

The broad approach of the government’s proposed replacement of the tax regime for non-doms is to transition from a domicile-based regime to a residence based regime – which was a known policy objective of the Labour Party should they form the next government. Labour had made direct reference to allocating revenues raised by this change to provide additional funding to the NHS.

Given the current government have seemingly used those additional revenues to help fund a cut to national insurance rates, Labour have been scrutinising the government’s plans ‘line by line’ to consider where further amounts may be raised to fund their pledges.

As a result of this, while Labour have stated their support to most aspects of the proposed changes, they claim that ‘buried in the small print are loopholes worth hundreds of millions of pounds’.

While Labour supports most aspects of the proposed replacement to the non-dom rules, including the four-year arrival window and the principle of a ten-year window for inheritance tax, it has argued that the government’s proposed measures include ‘loopholes’ which undermine the fairness of its original proposal. Accordingly, it proposes the following:

  • That all non-UK assets held in a trust should fall within UK inheritance tax, whenever they were settled. Labour has stated that this is to ensure that nobody living in the UK permanently can avoid paying UK inheritance tax on their worldwide estate. In addition, Labour’s view is that the government should have included this in the promised consultation as an option, rather than committing to grandfather trusts, but show no such indication that they intend to consult on this.
  • That there would be no 50% discount on personally received foreign income in the first year of the new rules for non-doms losing access to the remittance basis but who cannot access the foreign income and gains (FIG) regime.
  • That there will be consideration as to whether there should be an investment incentive during the four-year arrival window, so that UK investment income is free of UK tax and not disincentivised when compared to investment elsewhere in the world.
  • That to address concerns that FIG left overseas after the two-year Temporary Repatriation Facility closes will face a significant disincentive against its repatriation to the UK, Labour will explore ways to encourage people to remit ‘stockpiled’ FIG to the UK.


Labour’s response makes it more complicated for clients to assess their options in the run-up to the proposed change in rules in 2025.

While some might welcome Labour’s intention to promote investment in the UK by limiting the tax burden of remittances as an attractive concession, it will be interesting to see how Labour expects to ‘encourage’ people to remit stockpiled FIG to the UK and whether this is a mix of ‘carrot and stick’.

The intention of Labour to charge a trust’s non-UK assets to IHT, seemingly in circumstances where the settlor has been resident in the UK for ten years and more, irrespective when the trust was settled, is a significant shift in the overall potential IHT exposure for many non-dom clients.

This would include those individuals who funded trusts in advance of becoming deemed UK domiciled in 2017, when the last round of consequential changes to the non-dom regime took effect. Should these plans ultimately be enacted, the detail behind the legislation would require careful consideration to understand how it would impact clients, particularly where settlors of trusts are either deceased or excluded from benefiting.

Timeline and significance

The government’s proposals for the new FIG regime were not included within the Finance (No. 2) Bill 2023/24. As such, if they intend to pass the current proposals before the General Election, which is widely expected to take place in October or November 2024, it would indicate another Finance Bill being released later this year, possibly after a further fiscal event in the form of an Autumn Budget or Statement. In that case, we might see draft legislation published this summer. As part of the process, the government has announced a series of ‘listening events’ between 13 and 31 May 2024 to give stakeholders the opportunity to provide comments on these policy changes.

In relation to IHT transitioning to a residence-based regime, the consultation process announced suggests that this would not be included in a Finance Bill before the election, although it is possible that draft legislation might be provided as part of the promised consultation.

Even if the election was pushed to the last possible day, 28 January 2025, that still allows time for whichever Party is to form the next government to announce a Budget, prepare a Finance Bill and enact legislation to apply from 6 April 2025.

If Labour were to form the next government, that would provide them with time to make any desired amendments to any legislation the Conservative government passes beforehand.

This means that Labour’s reaction to the current proposed non-dom regime changes is a highly significant development and should be carefully considered and evaluated by clients in the same way as the Budget was on 6 March. 

Tom Evennett, Neil Morgan & Harry Hare-Scott, EY

Issue: 1661
Categories: In brief