Well before Labour’s landslide election victory in July, Sir Keir Starmer and his chancellor Rachel Reeves had made it clear that reshaping the UK tax regime was a top priority. And while the first budget of the new parliament, set for 30 October, will provide more clarity around the future of the tax landscape, the new government has confirmed it will end ‘the outdated concept of domicile status’, ‘address unfairness’, ‘close tax loopholes’ and ‘clamp down on tax avoidance’.
What’s more, the language of recent briefings has clearly been designed to prepare those with ‘the broadest shoulders’ for the worst.
Non-dom reform is just one of the measures intended to shore up the UK’s public finances. Reeves has said the country faces a £22 billion black hole in its finances, which, if not addressed, would result in a 25 per cent deficit in this year’s budget. Private school fees, inheritance tax (IHT) and more are on Labour’s agenda, and the party has a clear mandate to take action.
But what would the experts do? Every year Spear’s surveys leading tax lawyers and advisers for their views on what needs to happen, what mistakes should be avoided, and what their HNW and UHNW clients are saying.
[See also: ‘Super donors’ cross political aisle to support Labour party]
Non-dom crackdown
The government has confirmed it will scrap the current non-dom scheme from April 2025. Under a four-year resident-based system known as the ‘foreign income and gains’ (FIG) regime, individuals moving to the UK will have an initial four-year grace period before they will be subject to tax on income and gains in the same way as any other UK taxpayer.
Asked whether they would change the rules for non-doms if they were chancellor, 83 per cent of respondents to the Spear’s Tax Survey believe that the system needs reform (see chart 1), a significant increase from the 63 per cent in our 2023 survey and 43 per cent in 2022. Our advisers largely agree that the current non-dom rules are ‘too complicated’, ‘outdated’, ‘fraught with complexities’ and ‘deter investment’.
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‘The system needs to be modernised, but in a way that attracts HNWs to the UK and benefits the country, including by encouraging investment,’ says Marilyn McKeever, a partner in BDB Pitmans’ private wealth team.
Ensuring that the UK continues to attract investment is a common theme running through the responses to our survey, and the tax experts who wouldn’t change the non-dom rules cite the risk of losing revenue from HNWs and UHNWs. ‘These individuals can afford to leave,’ says Shahrzad Atai, a partner and head of international clients at GSC Solicitors. ‘History has proven that every time governments made such changes to target and take more tax, they actually ended up collecting less taxes the following year, as many people left.’
This year’s survey also shows an increase in the number of advisers who say their clients are preparing for non-dom changes – more than 90 per cent (see chart 2). It’s understandable, given that the Conservatives signposted their own, similar changes when they were in power. It’s also the aspect of tax that clients have sought the most advice over, ahead of inheritance tax, capital gains tax, property taxes and carried interest.
[See also: What does Labour’s landslide victory mean for (U)HNWs?]
What form is their preparation taking? ‘Some of our clients have left the UK or are planning to leave the UK at the earliest opportunity when circumstances allow,’ says Blick Rothenberg CEO Nimesh Shah. ‘Those clients who are unable to practically relocate at the present time are carefully considering their position and restructuring that may be required. However, given the incredible uncertainty surrounding the final rules – in particular the use of excluded property trusts – many clients [have been] frustrated at not being able to plan whilst the final rules are completely unknown.’
Wealth tax off the table
Despite calls for higher taxes on wealth to plug the fiscal hole and reduce inequality, Labour insisted it would not introduce a wealth tax. This chimes with the views of our tax advisers, who see it as neither a practical nor desirable method of raising revenue (see chart 3).
‘Wealth tax is highly burdensome for both payer and government, with complexity regarding valuations,’ says Michael Lewis, a partner in EY’s US/UK cross-border team. ‘It’s also difficult to police. The costs of administration mean it brings in little monies, while the burden on payers means that there is an impact on wider economic activity. Such a tax is also highly emotive; this, together with the fact that few countries have
On the whole, our experts think that VAT, CGT, energy taxes and the top rate of income tax should stay the same retained a wealth tax, would push people to leave the UK.’
Wilfrid Vernor-Miles, joint head of Hunters’ private client department, concurs: ‘Wealth taxes in other jurisdictions have proved extremely expensive to operate and notoriously open to avoidance… The Wealth Tax Commission report considered this only a viable option if it was genuinely a one-off tax. I would be concerned if it would become a part of the UK tax landscape.’
Protecting UK PLC
The vast majority of the experts we surveyed note the importance of the UK remaining a place where internationally mobile HNWs want to live and do business. An overwhelming 97 per cent say the UK would benefit if its tax regime became more favourable to wealthy individuals and entrepreneurs currently based in other countries. Entrepreneurs are wealth creators, one adviser argues, creating business and jobs – as well as investing in other UK ventures. This inward financial and talent investment is highly valuable to the whole country.
‘You only need to look at what other countries are doing to attract wealth and talent to prove this,’ says Jonathan Conder, a partner at Stephenson Harwood who won Tax Lawyer of the Year at the 2023 Spear’s Awards.
‘Attracting and retaining global talent can only be a good thing for UK plc,’ adds Andrew Goldstone, a partner in Mishcon de Reya’s private tax group. ‘They tend to bring employment and spending, and often turn out to be some of the country’s most generous philanthropists. Why have an unattractive tax regime that invites them to go elsewhere?’
Hike, cut or abolish?
So what makes for an ideal tax regime? We asked respondents to put themselves in the chancellor’s shoes and consider a variety of different taxes (see chart 4).
On the whole, our experts think that VAT, capital gains tax (CGT), energy taxes and the top rate of income tax should stay the same. That said, there is some support for increases in energy taxes and CGT and decreases in corporation and income tax.
Regarding CGT, most of our advisers expect it will be increased as part of the autumn budget. ‘An increased rate of 25 per cent would not be seen as prohibitive,’ says Antoaneta Proctor, a partner at Wedlake Bell. ‘I would unify the existing standard CGT rate of 20 per cent and the property gains CGT rate of 24 per cent.
Carried interest gains should be increased to 30 per cent, which is not hugely out of step with other EU jurisdictions. This should be accompanied by a simplification of the labyrinthine rules for determining what is a carried interest gain.’
[See also: Privately furious: Top independent schools braced for Labour’s VAT grab on fees]
Several leading advisers agree that stamp duty is due for a reduction; this would ‘encourage a more fluid property market’, says Katharine Arthur, who leads the tax team at Haysmacintyre. Another adviser notes that stamp duty – as well as income tax and corporation tax – places a burden on the majority of the population, deterring them from making choices that could improve their lives. And while some in our survey would leave IHT rates unchanged, more think it should be reduced – or abolished.
IHT is noticeably absent from the list of taxes that the chancellor has pledged not to raise, fuelling speculation that, alongside CGT, the autumn budget will bring changes. Labour has already confirmed the introduction of a ‘10-year tail’ on IHT on worldwide assets, and said it intends to ‘end the use of offshore trusts to avoid inheritance tax’.
‘With the proposal to bring everyone into the IHT net after 10 years’ residence, and with a 10-year tail on exit, the chancellor could afford to decrease [IHT], as it makes setting up home in the UK rather unattractive,’ says Stella Mitchell-Voisin, managing director of Summit Trust.
Other advisers call IHT ‘unnecessarily complicated’ and ‘unpopular’, noting that it ‘raises relatively little revenue and yet the compliance burden is high’. Our experts also agree about how an increase in overall taxes hikes would ultimately result in a lower tax take as individuals take steps to avoid paying; only 6 per cent believe the government still has room to manoeuvre.
Let down by HMRC
Commenting on HMRC’s approach to dealing with HNWs and their advisers, our experts are not kind (see chart 6), citing a general lack of understanding and the fact that the department is ‘hopelessly understaffed’. It’s a sentiment that has been relatively consistent across our previous annual tax surveys.
'Officers have little or no understanding of how HNW people deal with their finances and the complexities of managing their wealth,’ says Roger Holman, a lawyer and chartered tax adviser with Blick Rothenberg.
‘The terrible lack of resources leads to unacceptable turnaround times on correspondence and phone calls go unanswered,’ adds Peter Fairchild, head of the London private client team at Crowe UK. ‘More staff are needed to cope.’
