As widely predicted by the polls, the Labour Party won the UK general election on 4 July 2024, ending 14 years of Conservative government.

With a new cabinet in place, Prime Minister Keir Starmer has already begun implementing his agenda for “Change” – Labour’s election manifesto.

This includes plans to fund more state school teachers, and a promise to improve public services. The party also pledged £24 billion for green initiatives and ruled out increases to Income Tax and VAT.

While the new government intends to fund some of these changes by driving economic growth, the manifesto also included £8 billion of revenue-raising measures – such as applying VAT to private school fees.

Read on to learn more about these potential changes and how they could affect your finances as an international expat.

1. Removal of the “non-domicile” regime could result in a rise in your UK tax liability

If your permanent residence or “domicile” is considered to be outside the UK, you might be classed as a “non-dom” for tax purposes.

According to data published by HMRC, 74,000 people claimed non-dom status in 2022/23, up from 68,900 in 2021/22.

Under the current rules, non-doms only pay UK tax on the money they earn in or remit to the UK. Usually, non-doms will not be required to pay UK tax on foreign earnings or investment gains, provided they have lived in the UK for less than 14 years.

In the 2024 Spring Budget, the former Conservative government announced a raft of changes to the non-dom regime, which may influence Labour’s plans.

Under the Conservatives’ proposed new rules, anyone who moves to the UK after this date would not have to pay tax on overseas earnings for the first four years. After this period, they would be liable to pay the same tax as UK residents. The Conservative government also made provisions for a two-year transition period for existing non-doms.

The new Labour government has indicated that they will introduce the Conservatives’ proposed changes. However, they could possibly remove the transition period for non-doms and the use of offshore trusts as a tax shelter – to raise funds for public spending on education and health.

If this change is introduced, existing non-doms would be liable to pay global Income Tax and Capital Gains Tax.

While the precise details of the new rules are yet to be announced by Keir Starmer’s government, it is widely expected that changes will be introduced from 6 April 2025.

A recent report by the Guardian has revealed that many non-doms are considering leaving the UK, or spending enough time outside the country to avoid being classed as a UK resident. Destinations such as Monaco, Switzerland, and Dubai are popular choices for high-earning, mobile individuals seeking to shelter their wealth from tax.

2. Potential changes to tax policies could affect how you manage your wealth

Capital Gains Tax

In the UK, Capital Gains Tax (CGT) is levied on the profit or “gain” you make when you sell or “dispose of” an asset that has increased in value since you purchased it.

CGT is usually payable on chargeable assets that exceed your Annual Exempt Amount, which is set at £3,000 for the 2024/25 tax year.

The Annual Exempt Amount has been reduced over three consecutive years and it seems unlikely it will be cut further. However, as CGT is currently levied at a lower rate than Income Tax, the Labour government may be tempted to raise funds by increasing this rate. It is expected that this change may look to equalise CGT with an individual’s Income Tax rate.

Indeed, the “Change” manifesto explicitly mentions one area of CGT it does intend to amend: managers working in the private equity industry will no longer be allowed to treat performance-related pay as capital gains.

Inheritance Tax

Inheritance Tax (IHT) is another area where Labour may seek to make significant reforms.

Their manifesto promised to end, “the use of offshore trusts to avoid Inheritance Tax”.

Additional changes the new government might consider include reducing agricultural property relief and business relief.

Any changes to IHT and CGT will have implications for how you manage your wealth to keep it as tax-efficient as possible.

3. Ending the VAT exemption for private schools could increase the cost of education

Private or independent schools are currently exempt from adding VAT to their fees.

According to the BBC, there are about 2,500 private schools in the UK, educating approximately 570,000 pupils in England alone. The average annual fee is £15,000, but some of the most prestigious schools, such as Eton and Harrow, charge around £50,000 a year.

By adding VAT to private school fees, Keir Starmer intends to fund the recruitment of 6,500 new teachers for state schools.

As a result, you could see the cost of privately educating your children in the UK increase by roughly 20%.

There are concerns that this will put independent schools out of reach for some parents who will be forced to send their children to state schools – placing added pressure on an already strained system.

Alternatively, rising school fees could be a further reason for some to consider moving abroad.

4. Pension changes could make your savings less tax-efficient

The exact detail of Labour’s pension policy is not yet clear. However, Keir Starmer has pledged to conduct a pensions review.

While the new prime minister has confirmed that he has no plans to reintroduce the Lifetime Allowance (LTA), some pension reforms seem likely. Before it was abolished on 6 April 2024, the LTA limited the amount you could build up in pension savings without incurring a tax charge.

Instead of reviving the LTA, the government may consider reviewing the Lump Sum Allowance (LSA).

The LSA is the maximum amount you can withdraw from your pension as a tax-free lump sum. This is usually 25% of your total pension pot, but you cannot take more than £268.275 (2024/25) – equivalent to 25% of the original LTA. Your LSA may be higher if you hold a protected allowance.

If the Labour government decides to reduce the LSA, this would raise valuable tax revenues.

However, such a change is likely to be unpopular with many people in the UK. Indeed, it could drive some retirees to move overseas, take their pension with them and gain from various jurisdictions’ more favourable pension tax regimes.

5. Changes to taxation rules could potentially affect your investments in the short term

As outlined in their manifesto, Labour’s plans to significantly increase public spending – particularly on healthcare and education – are expected to be funded at least in part by higher taxation on corporations and wealthy individuals.

In the short term, these policy changes could potentially lead to market uncertainties.

This is because higher taxes could mean that businesses have less capital to invest in growth and may experience lower productivity. Similarly, individuals might have less disposable income to invest in the stock market.

Of course, it remains to be seen how, when, and indeed if, Labour’s proposed changes will be introduced.

Get in touch

We can help you navigate any new rules that the Labour government introduces and support you in amending your financial plan to ensure you continue progressing towards your goals.

Please email info@bmpwealth.com or call +852 3975 2878.