Labour and IHT rules
When a new government comes in after a long period of time, it’s important to keep on top of any significant changes that are made to tax laws, and how they might impact you. The newly instated Labour government plans to abolish non-domicile (non-dom) status and tighten Inheritance Tax (IHT) rules, which will affect over 68,000 individuals. Here’s a breakdown of what the changes might look like.
What is the Current System and What are the Proposed Changes?
Under the current system, non-dom status allows UK residents whose permanent home is outside the UK to limit their Uk tax liability on foreign income and gains. Non-doms can be taxed on a remittance basis, paying UK tax only on the income and gains they bring to the UK. To date, this has allowed wealthy individuals to benefit from lower tax rates.
The Labour government, however, proposes to abolish non-dom status. As Nick Hughes, an accountant specialising in tax advice for high net worth individuals and non-doms explains, this means anyone living in the UK, regardless of their domicile, would be taxed on their worldwide income and gains. Remittance based tax would be eliminated, subjecting all UK residents to the same tax rules. Ensuring that all UK residents contribute equally to the British economy seems to be very much at the top of Labour’s priority list. As such, it recommended that non-doms contact a tax advisor for help getting their tax affairs in order.
Tightening Inheritance Tax Rules
Inheritance Tax is widely known as one of the most hated taxes in the UK, so more stringent rules around it are likely to be unpopular. While everything is just hearsay and rumour at the moment, it’s thought that the Labour government plans to tighten IHT considerably. As it stands, IHT is chargeable at a rate of 40% on any part of an estate that exceeds the nil-rate allowance of £325,000. That said, a lot of reliefs and exemptions are in place, such as business property relief and gift exemptions.
It’s thought that Labour could reduce exemptions by lowering the IHT threshold, although this has been questioned. Some commentators think the threshold will remain in place, but that more people will be subject to IHT charges as property values rise. Reducing or removing the residence nil-rate band is a possibility, however, as is limiting reliefs for business and agricultural property. Currently, a person can claim up to 100% relief on the inheritance of agricultural land if it’s being actively farmed. With business relief, a person can pass on a company or shares with 100% tax relief – as long as it is unlisted.
Talk to Kent tax advisors about the potential tax shake-up and how it might impact you. Any changes to IHT reliefs could have a significant impact on SMEs and family-run businesses. Similarly, if you expect your estate to be subject to IHT because of rising house prices, you may wish to appoint a Kent accountant for probate services as your administrator, ensuring all taxes are paid as necessary upon your death. Remember, while new systems and legislation can seem daunting, help and advice is available should you need it.
