Another major change is the abolition of the non-dom tax status, which allowed UK residents whose permanent home is overseas to avoid paying UK tax on their foreign income. This policy has long been a target for reform by the Labour Party, but it was the Conservative government that ultimately decided to scrap it. From April 2025, the non-dom regime will be replaced with a new relief on foreign income and gains, available for the first four years of UK tax residence. Critics argue that this change will deter wealthy individuals from moving to the UK, potentially impacting investment and economic growth.
The government also announced significant changes to inheritance tax (IHT). Starting in April 2025, the IHT regime will shift from a domicile-based system to a residence-based one. This means that UK IHT will apply to worldwide assets for individuals who have been resident in the UK for ten years. While this move aims to simplify the tax system and ensure fairness, it has raised concerns among those who fear it will lead to double taxation and complicate estate planning for many families.
The backlash against these new tax policies has been swift and vocal. Liberal Democrat leader Sir Ed Davey described the Budget as a “last-ditch attempt from the Conservative Party to cling on to power,” adding that it “reeks of desperation.” Former ministers Suella Braverman and Sir David Davis also expressed regret that the Chancellor had not opted to cut income tax, arguing that the focus on National Insurance cuts was misplaced.
The public reaction has been equally divided. Some individuals welcome the reduction in National Insurance contributions, seeing it as a necessary step to alleviate financial pressure on workers. For instance, an employee earning an average salary of £35,000 will save approximately £450 a year under the new rates. However, others are concerned that the overall tax burden remains high, with freezes in income tax thresholds and “stealth” rises in council tax adding to their financial woes.
The debate over the new tax policies is set against a backdrop of economic challenges. The UK’s GDP has been broadly flat since early 2022, with slight growth in late 2022 and early 2023 offset by a contraction in the second half of 2023. Inflation remains elevated, with the consumer price index (CPI) inflation estimated at 4% in the 12 months to January 2024. The Bank of England has kept interest rates relatively high to combat inflation, further increasing the cost of servicing government debt.
As the UK approaches a general election, the tax policies have become a focal point of political contention. Both the Conservative and Labour parties are emphasizing their economic strategies, with the Conservatives aiming to reduce National Insurance further and the Labour Party proposing to introduce VAT on private school fees and increase the surcharge for overseas property buyers. The outcome of the election will likely determine the future direction of UK tax policy, with significant implications for individuals and businesses alike.
In conclusion, the UK government’s new tax policies have sparked a fierce backlash, highlighting deep divisions over the best approach to taxation and economic management. As the debate continues, it remains to be seen how these changes will impact the UK’s economic landscape and whether they will achieve the intended goals of fairness and growth.
