24 June 2021 - Events
The Labour party’s election manifesto and its accompanying ‘Funding Real Change’ report promise dramatic increases in taxation to fund a series of ambitious spending pledges, as detailed in our previous article on the topic. On Saturday 23 November, with a lot less fanfare than had accompanied the publication of its manifesto, the party published yet further taxation policies in the form of its ‘Fair Tax Programme’. Many of the proposals contained therein are likely to prove unappetising to foreign investors in the UK, as well as those individuals who live and work across jurisdictions.
The first of these policies is the scrapping of non-domicile status. John McDonnell had previously been reported saying that his intention was to do away with non-domicile status completely, bringing remittance basis users into the scope of UK taxation on their worldwide income. While a previous statement had been made to the effect that temporary residents might still be allowed to claim the remittance basis (with no indication of how long the ‘temporary’ status may last), it is worth noting that the policy in the Fair Tax Programme states that Labour’s starting point is now to scrap the remittance basis in its entirety, with only a consultation promised on the need for some concession for temporary residents.
A new offshore company levy will mean companies and trusts based outside the UK will pay a surcharge on purchases of UK residential property of 20% (referred to as a ‘small levy’ in the report), in addition to the usual stamp duty land tax rates. The report points out that one of the perceived benefits of owning UK residential property through a non-UK company is ‘privacy and secrecy’, both of which are targeted by some of the report’s other proposals.
A public trust register going beyond the current Trust Registration Services would be implemented. It would not be necessary to show a legitimate interest to access the information held on the register, as is currently the case. Relatedly, the regime governing registration of beneficial ownership of companies will be upended. Currently, only persons with significant control (meaning, very broadly, a 25% interest in the company) must be identified. Labour’s policy would scrap the threshold, meaning the identity of every shareholder would become publicly known. The report states that the public register shows ‘who really controls’ companies. Given that an individual shareholder with a negligible stake in a company can hardly be said to control it, one might wonder whether Labour’s sweeping new policy is actually geared towards a wholesale exposure of individual financial affairs. Finally, a Labour government would seek to implement public registers of beneficial ownership in the British Overseas Territories and Crown Dependencies in a further effort to disrupt the use of offshore jurisdictions for tax planning purposes.
A further radical change is found in the policy to require the public filing of the tax returns of wealthy individuals. The current plan will mean individuals earning over £1 million (presumably per year) will be required to file their tax returns publicly. Given Labour’s new designation of those earning over £125,000 a year as ‘super rich’, it is plausible that more taxpayers could be swept into the policy in the future if public filing becomes the new norm.
Labour’s 2017 manifesto commitment of an excessive pay levy on companies with high-earning staff has returned. The levy will start at 2.5% on companies with any staff earning over £300,000 per year, rising to 5% over £500,000 and 7.5% over £1 million. Large companies will also be required to file their tax returns publicly.
Further changes include increasing targeted audits by HMRC, replacing the General Anti-Abuse Rule with a wider-reaching General Anti-Avoidance Rule, launching an enquiry into offshore trusts and the possible introduction of a withholding tax on dividends and other distributions made to ‘abusive tax havens’.
The report covers a wide range of matters, from commonplace and unobjectionable tax planning practices to serious financial crimes. The lumping together of these diverse issues may be a cause for concern for those individuals whose tax affairs are necessarily complicated by the simple fact that they live and work across multiple jurisdictions.