07 Jun 2024
By Paula Fraser, Head of Private Client, AAB
Politicians up and down the land are currently pounding the campaign trail, following the Prime Minister’s shock announcement of a General Election of 4 July.
The sense of impending change is inevitably unsettling for many, particularly as the election of a new ruling party (or parties) could entail a significant shake-up of the UK tax regime.
It’s only a matter of months since Chancellor Jeremy Hunt announced a raft of new policies in the Spring 2024 Budget regarding National Insurance rates, and the High-Income Child Benefit Charge Two of his key announcements centred on changes in the taxation of non-domiciled individuals (‘non-doms’) and the taxation of furnished holiday lets (FHLs).
Changes to the Non-Dom Regime
As a reminder, the current non-dom tax status allows qualifying individuals a method to shelter their overseas income, chargeable gains and assets from UK tax for up to 15 years of UK tax residence.
However, in the Spring Budget this year, Jeremy Hunt announced that the non-dom status is to be all but scrapped, meaning that going forward non-doms would pay UK tax on all of their worldwide income and gains. More information on the changes can be found here.
Whilst the Chancellor announced there would be some reliefs available for individuals impacted by this change, on the whole the new regime would be significantly less generous than its predecessor.
Changes to the FHL Regime
Furnished holiday let owners have been able to enjoy a range of tax benefits, including profits counting as pensionable earnings, full deductibility of mortgage interest, the ability to claim capital allowances, and qualifying for Capital Gains Tax reliefs.
However, the Spring Budget revealed the Conservative governments plans to abolish the FHL regime from 6 April 2025, in effect removing all of the previously mentioned benefits, and taxing holiday rentals in the same manner as any other residential rental property.
As such, if you may be impacted by either the non-dom or FHL changes, is important to review your position now to ensure any planning opportunities can be maximised. More information on these changes can be found here.
What does an upcoming election mean for these changes?
Significant changes such as these always require time to implement, with a consultation period allowing time for stakeholders to input into the process and for appropriate legislation to be drafted. This process has not completed for either the non-dom or FHL changes prior to purdah – the pre-election period of sensitivity - meaning that the legislation will not be introduced prior to the election on 4 July.
A change in government might result in the proposed changes to be implemented, albeit with further restrictions and/or allowances, completely reversed, or left exactly as they are – as with so many issues in politics, we can’t know without access to a crystal ball! However, for individuals whose tax position may be impacted by the proposed changes, the uncertainty can make tax planning in the interim particularly difficult to navigate.
Should I be considering my options before the election?
Given the potential for changes across the tax system, we would advocate reviewing your overall tax position now with an experienced adviser. Once the dust settles, there may be limited time to put plans into place, and so it is key for individuals and advisors to act quickly and efficiently once there is clarity on the situation. In fact, it would be prudent to accelerate any inheritance tax or capital gains tax planning before the election, and certainly before the next government’s first Budget.
Policy proposals will be rolled out on the campaign trail in the coming weeks, and we will continue to monitor party communications along with analysing their manifestos to ensure our clients are kept up-to-speed in what will be a fast-paced few weeks. We will be keeping our LinkedIn page up to date with commentary as things progress in the run up to the election.
In the meantime, if you would like any further information on the proposed tax changes and what they could mean for your particular circumstances, please don’t hesitate to contact Paula Fraser, Head of Private Client, Blair Hay, Private Client Senior Manager, or your usual AAB adviser.
