The author of this article chides the two major UK political parties – Conservative and Labour – for being unclear about tax and, specifically, what is in the offing for affluent and high net worth citizens.

The following article is from Jon Shankland (pictured below), partner, head of international private wealth, and tax layers, at the national UK law firm Weightmans. He argues that the uncertainty around the status of resident non-domiciled persons (“non-doms”) is making the UK’s wealth creators nervous, and that many are leaving the country.


Jon Shankland

This article appears in the week of the UK general election which, based on opinion polls, is widely expected to produce a clear-cut Labour victory. That said, both the Labour and Conservative parties have already vowed to remove the non-dom system; details differ on exactly what the details of a new regime will look like.

The editors of this news service know that opinions vary in our sector about tax, and therefore wish to stress that the views of outside contributors aren’t necessarily endorsed by this publication. However, we welcome insights, and thank the author for this article. Email tom.burroughes@wealthbriefing.com if you wish to comment.

With the general election on 4 July, there are a lot of big tax questions still to be answered. There is uncertainty, and frankly mistrust, from the general public over what the major parties are saying about where the tax burden will fall.

In these murky waters, one truth has already started floating to the surface – wealth is already leaving the country because many of those that create it don’t know where they stand.

Whoever forms the next government, we know that further reform of non-domicile tax exemptions is coming. This is not a simple argument about who pays their fair share in tax, the issues here are far more nuanced and flow to the route of sustainability and wealth creation in the changing face of UK plc. There is a fear of the unknown and the risk of hearsay and conjecture; all must be addressed quickly before it does more damage to the UK economy. 

The political parties are walking a very fine tightrope; they wish to appear hardline on the taxation of international wealth (for political or other reasons), but at the risk of deterring those with wealth from bringing much needed funds to the UK. 

Residency and citizenship experts Henley & Partners’ latest Private Wealth Migration Report 2024 predicts that 9,500 millionaires are expected to leave the UK in 2024, more than double last year’s figure. While some of this is due to concern that there will be a less forgiving tax environment under Labour, many of the high earners that I speak to just want clarity so that they can start preparing.

Neither Labour nor the Conservatives have nailed their colours to the mast and stated exactly what reforming the non-dom tax regime will look like. This is putting the financial best interests of our country at risk needlessly. 

What we know
In May, Chancellor of the Exchequer Jeremy Hunt announced that the current regime for tax-resident but non-UK domiciled individuals (the remittance basis of taxation), would be scrapped and replaced by a new foreign income and gains regime (“FIG”). The proposed reform also includes a new “residence-based test” for inheritance tax, and the ending of excluded treatment for offshore structures created by non-domiciled individuals. 

Hunt proposed that from the coming 2025/2026 tax year, new residents to the UK could avoid all tax on foreign income and capital gains for four years but would, afterwards, have to pay tax as normal on all of their worldwide income and gains as they arise, subject to several temporary relief provisions. 

Also, on the table were changes to the long-term taxation of offshore vehicles like trusts that were established internationally prior to someone becoming domiciled in the UK.  

In addition, the concept of “domicile” was to be abolished both for normal taxation on wealth and for inheritance tax. Instead, anyone who is resident in the UK for 10 or more tax years will be subject to UK inheritance tax on their worldwide estate. To avoid this liability, a person would need to leave the UK and be non-resident for 10 years, in other words there is a 10-year tail whereby inheritance tax would still apply to a long-term UK tax resident’s estate, for 10 years after they have left the UK! 

What we don’t know
Labour has fervently criticised Hunt’s plan for non-doms, claiming that the loopholes it contains equate to millions of pounds in lost taxes. They have pledged in their manifesto to close these perceived loopholes, but without giving any real sense of how. 

That means that, if the polls are correct and we’re heading for a Labour landslide, we do not know which, if any, of Hunt’s reforms will be carried through. And we do not know what additional measures will be implemented, although we can predict they will be more stringent. 

Even in the unlikely event of a Conservative victory, Hunt’s seat is in jeopardy, and he would be unlikely to remain as Chancellor if unelected. Would his replacement seek to drive forward their predecessor’s plans, or have their own ideas for reforming the tax regime?

So much is still unconfirmed and unsubstantiated and that it is causing the most significant upheaval and concern. The biggest concern for international wealth bringers to the UK, is that despite careful planning when they arrived and invested in the UK, they will very suddenly see their worldwide estate caught by UK income tax, capital gains tax and inheritance tax and with no alternative to shelter assets.

It is important to consider that many wealthy individuals who bring their families and wealth to the UK (in whole or in part), were not born in the UK, have not relied upon the UK and seek only to add to the rich tapestry with their skills and their wealth. It is critical that whoever is next in the seat of power considers not only those that may leave the UK, but also those who may never now come to the UK in the first place. 

The UK has had a declining manufacturing and industrial outlook for GDP and wealth production for some time; if we are no longer to attract wealth from abroad, where does that gap in asset influx get bridged?

The clock is ticking for both political parties. As polling day draws closer, I like many will be hoping that whomever the country votes for will move quickly to provide tax clarity. That is essential for stopping wealth that could have benefited the UK, either through taxation or investment, from leaving – or never coming here in the first place.