On 4 July 2024, the Labour Party won the UK general election. Following 14 years of Conservative leadership, Rachel Reeves, the new chancellor of the exchequer has revealed a £22 billion "black hole" of debt, caused, it is claimed, by the Conservatives’ overspending.
While barbed statements will continue to come from both sides of parliament, the focus is very much on balancing the books. And it's more likely than ever that Labour's chancellor will need to increase taxes to make revenue savings.
Even before the black hole “revelation”, the new government had to find funds to fulfil at least some of their promises. They have pledged, for example, to increase the number of teachers in state schools, to improve public services, and support green initiatives.
While they have (currently) ruled out increases to Income Tax and VAT, there are other changes afoot.
Read on to learn more and how incoming tax changes might affect your finances if you're a British expat.
1. Removal of the non-dom status could increase your UK tax liability
In the 2024 Spring Budget, the Conservative government announced the removal of non-dom loopholes.
The Conservatives’ non-dom policy stated that, from April 2025, people moving to the UK won’t have to pay UK tax on money they earn overseas for the first four years of living in the UK – essentially scrapping the “remittance basis” rule.
It also made provisions for a two-year transition period for existing non-doms.
Read more: What the UK Spring Budget changes to non-dom tax could mean for you
Now, Labour have confirmed that: “We will abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period”.
While Labour have indicated that they will introduce the Conservatives’ proposed changes, they could remove the transition period for non-doms.
The Labour Party is also likely to ensure that all foreign assets held in trusts will be liable to Inheritance Tax (IHT).
While the precise details of the new rules are yet to be announced, it’s expected that changes will be introduced from 6 April 2025.
With all this going on, thousands of millionaires are considering leaving the UK, or spending more time outside the UK to avoid being classed a UK resident.
Indeed, Fortune report that an estimated 500,000 millionaires will leave the UK by 2028. Belgium, Germany, Spain, and Italy among the popular European countries that may see an influx of millionaire residents.
2. A couple of potential tax changes that could affect how you manage your wealth
Clearly, something has to give and Capital Gains Tax (CGT) and Inheritance Tax (IHT) are probably high on the list of targets for change.
Capital Gains Tax
In the UK, Capital Gains Tax (CGT) is charged on profit you make when you sell (or ‘dispose of’) of an asset that's increased in value.
Currently, every individual has an Annual Exempt Amount of CGT. For the 2024/25 tax year, this is £3,000 (or £1,500 for trusts). So, if you generate profits exceeding this threshold, you’ll be liable to pay CGT on the excess.
The Annual Exempt Amount has already been reduced from £6,000. So, while it seems unlikely that the Annual Exempt Amount will be cut further, it is possible that the rate of which CGT is charged could be increased.
CGT is currently levied at a lower rate than Income Tax, so it’s not inconceivable that this is an area for potential change. If it is on the hit list, it’s been mooted that this change may aim to equalise CGT with an individual’s Income Tax rate.
Labour’s “Change” manifesto explicitly mentions one area of CGT it does intend to alter. While a niche concern, managers working in the private equity industry will no longer be allowed to treat performance-related pay as capital gains.
Inheritance Tax
When it comes to Inheritance Tax (IHT), Labour’s manifesto promised to “end the use of offshore trusts to avoid IHT so that everyone who makes their home here in the UK pays their taxes”.
Additional changes the new government might consider include reducing Agricultural Property Relief and Business Relief.
While we must still wait and see what changes Labour intend to make to CGT and IHT, any adjustments they do implement may affect how you manage your wealth.
Certainly, tax efficiencies you currently have in place may need to be reassessed in light of the new government.
3. Pension changes could make your retirement savings less tax-efficient
Though prime minister Keir Starmer has confirmed that he has no plans to reintroduce the Lifetime Allowance (LTA), he has pledged to conduct a pensions review.
Before it was abolished on 6 April 2024, the LTA limited the amount you could accrue in pension savings without incurring a tax charge.
Read more: How the abolition of the Lifetime Allowance could affect you
While the LTA has already been pushed out of view, the government may reconsider the Lump Sum Allowance (LSA).
The LSA is the maximum amount you can withdraw from your pension as a tax-free lump sum. Typically, this is 25% of your total pension pot, but you cannot take more than £268,275 (2024/25) – equivalent to 25% of the original LTA.
So, even if you accrued £2 million in your pension savings, you would still only be able to withdraw £268,275 as tax-free cash, rather than £500,000.
If you hold a protected allowance, your LSA may be higher.
In the event that Labour decide to reduce the LSA, it would inevitably raise valuable tax revenues.
That said, such a change is likely to prove unpopular.
Indeed, it could drive some retirees to move overseas. In which case, they could take their pension with them and potentially gain from more favourable pension tax regimes in other jurisdictions.
4. Removal of VAT exemption for private schools could increase the cost of educating your children
Private or independent schools are currently exempt from adding VAT to their fees.
However, Labour have pledged to end VAT exemption and business rate relief for private schools.
Since many private schools will have little choice about how to fund this increase in costs, it’s likely they will pass at least some burden to parents. If so, you could find that school fees go up by roughly 20%.
This move could place private schools beyond reach for some parents. As a result, more people will be forced to send their children to state schools – putting additional pressure on an already strained system.
Another view is that the rising cost of private school fees in the UK could be a further reason for some to consider moving abroad.
Get in touch
The Labour Party will reveal more detail about these and other proposed changes on Wednesday 30 October, when Rachel Reeves will unveil the Budget.
In the meantime, we are here to help you navigate changes that the Labour government introduces.
Our advisers will provide you with first-class advice specific to your needs and the country you live in, ensuring your financial plan remains as tax-efficient as possible to help you achieve your long-term goals.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning.
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