Inheritance Tax and Offshore Trusts: Labour’s Election Manifesto Highlights
The unveiling of the UK Labour Party’s manifesto brings significant policy intentions that could reshape the taxation landscape, particularly for non-domiciled residents and offshore trusts. Among the declarations, the prospect of applying inheritance tax (IHT) to all offshore trusts and the outright abolition of non-dom status stand out as measures aiming to ensure tax equity and integrity.
Abolishing Non-Dom Status
The manifesto signals a clear intent from Labour to abolish the non-dom status, proposing instead a modern scheme designed for individuals genuinely residing in the country for a short period. The definition of “short” remains open to interpretation, hinting at a possible deviation from the currently discussed four-year threshold.
Interestingly, the manifesto also tackles the utilization of offshore trusts for IHT avoidance. Labour’s stance is unequivocal: everyone making the UK their home should pay taxes in the UK, thereby ending the use of offshore trusts for circumventing IHT obligations. Furthermore, the manifesto outlines plans to raise an additional £600 million by closing the “non-dom discount loophole” by the 2025-26 fiscal year, an initiative that seems to reference and counteract the grandfathering provisions introduced in previous budgets.
Capital Gains Tax Uncertainty
While Labour has assured that income tax, National Insurance, VAT, and corporation tax rates would remain unchanged, the manifesto’s silence on Capital Gains Tax (CGT) has stirred concerns. The current government had already reduced the annual exempt allowance to £3,000, significantly impacting higher rate taxpayers and entrepreneurs. Labour’s potential governance raises questions about further increases in CGG rates, which could exacerbate the financial strain on UK entrepreneurs and investors.
Pension Schemes and State Pension
The manifesto does not introduce major revisions to the pension sector but reaffirms Labour’s commitment to the State Pension triple-lock. Additionally, it encourages green-focused investments and aims to foster consolidation in the workplace pension market through a comprehensive review to improve outcomes.
VAT on Private Schools and Tax Avoidance Measures
Labour projects raising £1.5 billion by applying VAT and business rates to private schools, a move expected to significantly increase fees and potentially limit private education access to the wealthy. Moreover, the manifesto estimates a £5.2 billion revenue from closing non-dom tax loopholes and additional funds from addressing the ‘carried interest loophole’ in the private equity sector.
Implications for Future Government Policies
The Labour Party’s manifesto, while not exhaustive in addressing all potential tax changes, clearly emphasizes wealth creation alongside equitable taxation. Strategic investments in green industry, planning reforms to bolster housing development, and leveraging private sector investment depict Labour’s broader economic aspirations. However, the lack of definitive statements on CGT and the omission of plans for reinstating the pension Lifetime Allowance suggest that important tax policy announcements could emerge post-election, particularly in the government’s initial fiscal statement.
Labour’s approach signals a caution towards radical fiscal shifts, aiming instead for a balanced narrative that encourages wealth creation without precipitating public unease. As the political landscape evolves, stakeholders across the spectrum, from investors to entrepreneurs and the broader public, await further clarifications on how these manifesto pledges will translate into actionable governance policies.
