Following the recent election results, it is expected there will be significant change to Private Wealth and Inheritance, to reflect the priorities of the newly elected government. The Labour party have been vocal about their wishes to reform the current economic and social challenges with a focus on addressing the unfairness in the tax system. It is important to ensure you have up to date estate planning and wealth management in place before the changes are made to ensure you can make the most of the current rules as there is no guarantee they will stay.
Abolition of Non-Domicile Status
The Labour Party have indicated that they will be looking to abolish the non-domicile status, which currently allows certain individuals to limit their tax liability in the UK. The proposal includes replacing it with a modern scheme designed for those actually residing in the country. This reform is intended to ensure that individuals who make their home in the UK contribute their fair share of tax. The aim is to end the use of offshore trusts to avoid inheritance tax.
Capital Gains Tax
With regard to the rates of Capital Gains Tax, the party has not denied that there would be a raise in the rates and there is therefore speculation that the rates will be going up. There was a suggestion that the Labour party would be aiming to align the CGT rates more closely with the income tax rates. It is important to be aware that investments held in pensions and ISA tax wrappers will not be affected by changes to CGT rates. There may be some adjustment to reliefs however this has not been set out at this stage.
Enhanced reporting and compliance measures are likely to be introduced, especially looking at CGT declarations. There is likely to be a need for real-time reporting requirements and there may be an increased penalty for late or inaccurate reporting.
The Labour Party is also targeting the private equity industry, specifically the treatment of performance-related pay as capital gains. By closing this loophole, the party aims to ensure that income earned in the UK is taxed appropriately.
Modernising HMRC and tacking tax avoidance
Significant changes are proposed for HMRC, including increased registration and reporting requirements. The aim is to invest in new technology to allow HMRC to deal with a higher capacity and tackle tax avoidance effectively.
Inheritance Tax
There are reports that Labour are considering some changes to the Inheritance Tax Reliefs currently available, potentially some modifications to Business Relief and Agricultural Relief to raise tax revenue. There may also be similar changes to lifetime gifting that currently attract no IHT if the donor survives for more than seven years, however at this stage we have heard no further. There has been some conversation about raising the IHT thresholds however this does seem to be unlikely. Simplification of reliefs and exemptions to ensure fairness and clarity are also in discussion.
Income Tax
There is likely to be the non-domicile reform as discussed above however there will be a freeze on the income tax threshold until 2028.
There are some discussions in relation to the encouragement of philanthropy and incentives that may be introduced to encourage charitable giving. There may be some enhancement to some reliefs or some additional reliefs implemented. It will be very interesting to see the changes that are set out by the budget released by the Labour Party in due course.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.