The announcement of a general election has meant that the government’s plans for the reform of domicile have effectively been abandoned for now. The finance bill was stripped of the relevant clauses in the so called “wash up” in which it was rushed through the legislative process prior to the prorogation of Parliament.
So, where do we go from here?
As a general direction, there is little doubt that we should have abolished domicile as a relevant factor in relation to all taxes, including inheritance tax, by the mid-19th century. Why? To have any part of the tax system dependent on where your father or grandfather was born is crazy. Both Labour and Conservatives broadly agree on the shape of the reform.
It is:
- Abolition of domicile as determining territorial basis;
- Abolition of the remittance basis;
- Four years residence rule for income tax and CGT;
- Ten years residence rule for inheritance tax;
- a Temporary Repatriation Facility (TRF);
- CGT rebasing.
The main difference between the parties is going to be on inheritance tax and trusts. Here my sense is that Labour have been clear that there is not going to be grandfathering for existing trusts.
When?
If the Conservatives win the election, I anticipate an Autumn Budget with legislation in the Autumn of 2024.
I anticipate that the issue of non-domicile will feature heavily in Labour’s election campaign. They will often be asked how they will pay for things and domicile reform is probably a significant part of the answer to this. Whether or not the numbers are accurate, expect to hear plenty of times that the current government’s proposed reforms are a missed opportunity and that there is much more that can be raised by Labour’s version of the new legislation.
All the evidence from the 2015 election is that non-domicile issues were the only area on which Ed Miliband got a better rating than David Cameron. So don’t expect Labour to be reluctant to mentioning domicile reform on the campaign trail.
If Labour win, I would expect an Emergency Budget shortly after the election, but domicile reform is fairly unlikely to feature in it: the legislation and the detail simply won’t be ready that quickly. However, the policy is sufficiently developed that they will have time to implement something by to key date of 6 April 2025. I feel that a Labour government will want to progress this as quickly as is practical.
I would therefore expect draft legislation in a (late) Autumn Statement and a Finance Bill in the Spring in the event of a Labour victory.
Stephen Parnham
