Labor has been hit by arguments from wealthy groups who want to avoid harsh treatment in its first budget. Last week the government made its choice clear: private equity managers are largely given free rein, but non-doms will pay billions of pounds more.

Chancellor of the Exchequer Rachel Reeves earmarked £40 billion (S$68.6 billion) in extra taxes on Wednesday (Oct 30), saying it was needed to repair public finances and invest in services. It generally received lukewarm support from the business community.

For private capital, the long-stalled tax rise was seen as decidedly positive compared to Labour’s previously hostile signals to the industry. Increasing taxes on carried interest from 28 per cent to 32 per cent will affect around 3,100 people working in the investment management sector and raise an extra £300 million by 2030, according to the government.

At the other end of the scale, one of the biggest fundraising measures was the removal of non-residence rules, which is expected to generate around £12.7 billion in revenue by 2030. The government said about 25,000 people would be eligible for four years of taxes. 9,300 people will not benefit from foreign income cuts and officials said at least a thousand people were expected to leave.

After Labor won the general election in July, new Prime Minister Keir Starmer laid the groundwork for a budget that will be particularly fraught for those with the “broadest shoulders”. Ministers have spent the summer talking up the economic damage caused by the previous government, while raising fears of a sudden increase in tax burdens on the wealthy.

“The chancellor’s time in the dispatch box reflected the prime minister’s sentiments that those with the broadest shoulders should bear the greatest burden – we now have some clarity on what this government thinks ‘broad shoulders’ means,” said private client partner James Cook. At the law firm of Russell Cooke.

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positive result

There has been a quiet celebratory atmosphere within private equity firms so far. Consultations are still taking place on issues such as how much managers should contribute to their own funds and how long they should hold investments to show they are truly risking their own money. Currently, only two in five transportation buyers are co-investing, according to the Center for Tax Analysis.

There could be further changes arising from the consultation from April 2026, with the tax rate rising to 34.625 per cent as it will include national insurance for the first time, although Michael said the government would only tax 72.5 per cent of the cost of carriage. Graham made the calculation based on Treasury documents.

This means transport duty will increase by four percentage points in line with the headline capital gains tax increase, with only a small increase after that, which is a very positive outcome, Graham said.

The changes look particularly good for loan funds, which tend to pay a mix of income tax and carried interest tax and will move to a lower fixed rate under the changes, according to Graham. But venture capitalists are less likely to be in a position to do so because the 28 percent rates will increase and they don’t appear ready to benefit from other changes, he said.

“The increase is the minimum the government will accept,” he said, especially since Labor had repeatedly signaled the rate would increase. Still, he said, carrying will be considered income tax and could increase further in the future.

“We have more confidence today than we had yesterday before the budget was announced,” Michael Moore of the British Private Equity and Venture Capital Association told Bloomberg Radio on Thursday. He emphasized that his membership had funds to spend on British projects. “In terms of what we invest in – and there is 178bn of dry powder yield capital to deploy – we typically invest 50 per cent of that here in the UK.”

This capital could be useful for Labour’s promise to unleash a wave of private funding for large-scale public projects. Starmer declared growth and wealth creation to be the cornerstones of his government as he used last month’s investment summit to announce new and already agreed investments worth £63bn.

Move away

Budgeting was more challenging for wealthy foreigners with non-dom status living in the UK; this was mainly because he continued to pursue plans to bring his overseas fortunes into the inheritance tax regime over time. Amanda Tickel, Deloitte’s global tax policy leader, told Bloomberg Radio it wasn’t an “exodus” but the idea of ​​their descendants paying death tax in the UK had turned some off.

Labor did not give in to lobbying for a new tiered system and instead stuck to its plans for a residence-based programme. “The government has played politics with foreign investors and the economic result will be a Liz Truss long-term budget,” said Leslie Macleod Miller, chief executive of Foreign Investors UK, which has campaigned for a more generous regime.

Some of the richest will leave the country rather than take the hit to their global wealth. The Office for Budget Responsibility (OBR), which examines the state’s spending figures, estimates that between 12 per cent and 25 per cent of those ineligible for the replacement of the non-dom system will emigrate; This means a figure between approximately 1,100 and 25 percent. 2,300, but it’s hard to estimate how many people’s lives will be destroyed by the tax.

The changes show Labor believes many of the country’s richest foreigners are being bluffed by threatening to leave the country. Officials have long said it will be harder than expected for non-doms to leave London, as cities like Abu Dhabi and Milan woo them with crazy tax benefits.

“I remember asking HMRC (Her Majesty’s Revenue and Customs) officials: ‘You can’t tell me, but can you Google the top 50 people and find out if their children are of school age?'” member Andy King told a Bloomberg event on Thursday that the OBR had passed It was said that it was like this until the year. “Are they likely to move?”

Still, officials have thought through the plan and produced plenty of detail to support it, according to PwC tax partner Alex Henderson. The government is trying to persuade the wealthy to bring their wealth onshore and spend it in the UK, in a proposal that some may like as a way to simplify regulations.

But Henderson said making these changes would be complex and expensive and there would be “significant concern” that wealth with no connection to the UK could be subject to inheritance tax.

The OBR’s prediction that a quarter would leave is higher than former Conservative Chancellor Jeremy Hunt’s fifth prediction in March, when he laid out similar plans.

If Labor gets the balance wrong it will be “terrible news” for the country, says Dominic Lawrance, partner at Charles Russell Speechlys.

farm land

Labor is not just extending inheritance tax to non-doms. There is also backlash over the inclusion of farmland valued at more than £1 million in the tax. But Dan Neidle, founder of Tax Policy Associates, said only 500 farms were claiming more than £1 million in benefits in 2022, and married couples could claim benefits to reduce this further.

Another way to pass money to the next generation through retirement savings is becoming increasingly difficult. Around 49,000 estates receiving pensions face a bill each year, according to government estimates. This includes 10,500 people whose retirement puts them above the inheritance tax threshold and 38,500 people who will now face an additional bill.

For bereaved people the process will be a “nightmare”, according to Steve Webb, partner at pensions consultants LCP and former pensions minister. BLOOMBERG