In this year’s UK Budget, the Labour government is looking to raise between £15 billion ($19.6 billion) and £20 billion.
The new governing party has a huge majority and plenty of MPs to push through its policy agenda, and a five-year term, enough time for voters to forget any early changes as ministers look to solve the country’s fiscal challenges.
Prime Minister Keir Starmer has openly said this Budget will be “painful”, but promised not to increase the taxes of working people, ruling out increases to income tax and national insurance.
In the same breath, however, he made it clear that: “Those with the broadest shoulders will bear the heaviest burden.”
A series of policy changes affecting non-dom tax status and inheritance tax (IHT) are expected to be announced by the government on October 30.
Should that happen, such changes are likely to prompt internationally mobile individuals to review their futures in the UK and explore more favourable tax jurisdictions in the Middle East.
What do we know so far?
We know that value-added tax will be payable on private school fees from January 1 next year and added to fees paid after July 29 that relate to next year’s school terms.
We also know that non-domiciles, once they have been resident in the UK for four tax years, will be liable to pay tax on worldwide income and gains, removing the concept of the remittance basis of taxation.
Although as a corollary to this, non-domiciles will be allowed to bring foreign income and gains into the UK free of tax for the first four years of their residency.
We know that the IHT protection available to trusts, providing immediate tax exemption, established by non-UK domiciles will be removed and while the government has yet to confirm the timeline for these changes, they are most likely to be effective from October 30.
IHT will move away from being based on an individual’s domicile status to a residency basis. The previous government suggested this would be based upon a residency of 10 years. However, there is no certainty that the current government will follow such advice.
A key concern for many is whether existing offshore trusts set up by non-domiciles before the Budget will continue to be exempt from IHT.
Retrospective changes would render existing structures almost worthless and have huge implications.
Other potential changes could include hikes to capital gains tax to align it with income tax, removing rebasing on death as well as increases to IHT generally.
All of which represent the epitome of “those with the broadest shoulders”.
What it means for the Middle East
These tax implications could lead internationally mobile individuals to reconsider their UK domicile and residence, and whether to sell businesses before the proposed changes come into effect.
Individuals able to move to another market should examine their long-term plans and consider the potential impact of the changes.
It is likely that individuals most affected and free to move will consider alternative jurisdictions offering a more favourable tax outcome that also meets their business and lifestyle requirements.
Economies across the Middle East are expected to benefit from the UK tax changes, further fuelling the region’s growth and emergence as a major economic centre.
The UAE is expected to be an attractive destination for individuals leaving the UK due to its political stability, international connectivity, favourable visa policies, and high quality of life, as an increasing volume of overseas professionals move to Dubai and Abu Dhabi.
Enquiries from clients looking to leave the UK for the Middle East are on the increase, with people exploring countries including the UAE and Saudi Arabia as they reassess their potential tax obligations.
Meanwhile, a number of clients are moving to the Middle East this year to take advantage of their current tax status to dispose of their businesses tax efficiently.
As ever, individuals considering major financial decisions will need to conduct a thorough assessment of their tax and asset structures with their advisers as they review alternative jurisdictions.
For some, it may be worth considering whether existing plans should be accelerated in anticipation of the expected changes.
The upcoming Budget is set to bring some of the most significant changes to UK tax in recent times.
As we wait on the Chancellor’s final decisions, the one thing I can guarantee ahead of October 30 is that this year’s Budget will be anything but boring.
Tony Müdd is divisional director – development and technical consultancy at St James’s Place
