After what can only be described as a fairly turbulent time in British politics of late, we have now had a general election, delivering one of the most decisive victories in recent years, so surely things can only get better from here on out, right?
While the overall result of a Labour win has been portended for many months, the reality is that although Labour have a significant majority in the House, they do not have the same groundswell of support across the electorate. A low voter turnout, and a split of the vote between the Conservatives and Reform has resulted in Labour only being actively supported by approximately a third of the country, even assuming no tactical voting. Yet with such a large majority in terms of seats, Labour can do whatever they want to in this parliament, the question is, will they?
It is clear that the British people have voted for change, and few would deny that there are some things in the UK Government house that probably need addressing. But in the world of business and of taxation, is change what we really want?
A five-year political term for a government was intended to give some stability and allow the ruling party to build something over a suitable period of time. However, politics remains afflicted by short-termism and hunting for head-turning headlines over the things that businesses and taxpayers alike really want: stability and certainty.
In their last-ditch Budget, Jeremy Hunt pulled a proverbial rabbit out of a hat when announcing they would reform the non-dom regime, with changes taking place in a little over 12 months’ time. A technical note of how it was all going to work was produced, which raised more questions than it answered. Perhaps mindful of how difficult this would be to implement practically, HMRC ran a series of ‘listening events’ whereby they listened to tax advisers, lawyers and interested parties who pointed out the holes, the problems and the unintended consequences of the proposed reforms. We never did get to any draft legislation, and one could argue that asking for help after drafting the changes was the wrong way round, but hopefully the useful comments made will be used in the next iteration of the reforms. Indeed, we can only hope that the new government will move away from dropping new legislation and subsequently producing guidance to explain how it is intended to work and more towards an iterative process, gathering feedback and consulting on changes before producing tax law.
It is now almost certain that the proposed new rules will not be enacted as is, but given this was Labour’s idea in the first place, changes remain afoot for non-doms. Already reports are that non-doms are leaving the UK at an alarming rate, with far more disappearing much faster than had been predicted by the people who were trying to show that the proposed changes would not result in a wealth drain from the UK. Although there is now some additional breathing room, with all the uncertainty many non-doms have already looked to more favourable shores in Europe. It is not necessarily the tax rules themselves that are causing the mass exodus (although there are many arguments why taxing globally mobile individuals on their worldwide wealth that has nothing to do with the UK is going to be somewhat off-putting), but the fact that people cannot plan when everything is in flux.
So, following the election, we have the change that so many wanted, but we do not yet have the stability and certainty we need for the UK to thrive. New Chancellor Rachel Reeves described our current economic position as ‘the worst…since the second world war’ in her first week of office, but Labour have promised to give us notice of an autumn Budget in the next couple of weeks, so we have a little breathing room before any new tax measures are announced. Capital Gains Tax (CGT) is once again vaunted as being on the chopping block, after Ms Reeves had ruled out increases to income tax, NI and VAT, leaving her little wiggle room in terms of taxes she could raise. CGT is, of course, the main tax paid by individual business owners looking to sell, and many view the reduced rate of CGT compared with higher income tax rates as a reward for all the long hours and hard work put in over the years. The CGT base is actually very small, and unlikely to pay for all the public services improvements the new Government want to make even if the rate were raised significantly. Would this encourage UK entrepreneurship or simply put them off? Is the most likely result that these people too will leave the UK to realise gains in a welcoming low tax jurisdiction?
It remains early days, but over the coming months we will see whether the change of government ends up being a d:ream, or more of a nightmare.
