Changes to UK Taxation – Income tax and capital gains tax

2 September 2024

Our previous post set the post-General Election scene for the state of play regarding changes to the UK taxation of non-UK domiciles following confirmation of a Labour Government.  In a nutshell, the theme is that the only clarity we have is that there is no clarity.

The outgoing Conservative Government initially announced changes, but with no associated legislation.  Labour have confirmed they similarly intend to make changes but again with no real detail.  The changes will impact how non-UK domiciles are assessed to income tax, capital gains tax and inheritance tax.  This post will focus on income tax and capital gains tax.

For income tax and capital gains, the changes principally involve abolishing the remittance basis and Labour have confirmed in their policy paper that they will do this.  So, it is a safe presumption that this basis of taxation will soon be consigned to the bin (save for some inevitable hangovers).  Therefore, what is clear is there will be change but what will we be left with?

Labour have also confirmed that they will introduce the Conservatives proposal of a new system to replace the remittance basis.  The proposal was for a new system providing a four year exemption for foreign income and gains where prior long-term non-UK tax residency conditions are met.

The Conservative proposals also included four other key foreign income and gains measures alongside the four year exemption:

• A 50% transitional relief for remittance basis users falling outside of the four year exemption.  This relief would exempt 50% of foreign income in 2025/26.
• A temporary repatriation facility to allow previously unremitted income and gains to be remitted at a low tax rate of 12% in 2025/26 and 2026/27.
• A simplified overseas workday relief.
• A capital gains rebasing (strangely to 2019).

The only measure Labour have definitively said that they would not introduce is the 50% transitional relief.  They support the temporary repatriation facility but will make a further announcement in the Autumn Budget relating to the tax rate, the length of time it is in place for and possibly an expansion to include overseas structures.  They have said they will introduce a capital gains rebasing but will announce the rebasing date in the Autumn Budget while they will retain a “form of Overseas Workday Relief”.

In addition to the Conservative proposals, Labour have also said they will review “offshore anti-avoidance legislation”.  This is to “remove ambiguity” and “modernise the rules” to “ensure they are fit for purpose”.  No specific details have been given though changes are not anticipated until 2026/27.

As mentioned in our previous post, the earliest we would expect any real detail is the Autumn Budget.  While we would expect there to be a lot of speculation until then we will follow up with further thoughts as soon as there is news that looks remotely like it will provide a bit more clarity.

Key takeaways:

• As was the case with the outgoing Conservative Government, Labour intend to abolish the remittance basis and replace it with a new four year exemption system
• The new system is expected to be available to arrivers meeting prior residence conditions but will include transitional arrangements for existing remittance basis users
• Offshore anti-avoidance legislation is to be reviewed so that they are modern and effective
• Further detail is not expected until the Autumn Budget