With the general election now three months behind us, the impact and implications of the new Labour government are still subject to speculation. Though a commitment to building 1.5 million homes over the next five years forms the basis of the Labour Party’s plans to revitalise the UK economy, the more granular aspects of the new government’s economic-focused manifesto may invite socioeconomic shifts that could mean any number of things to investors and their portfolios, up to and including catastrophic losses.
For investors seeking their fortunes in a downturned UK economy, the Labour government could represent a unique opportunity to build their portfolio around the party’s strategy. Doing so not only requires an oversight of that strategy but also the response markets may have.
Want to better understand the UK investment market under the new government? Here’s our forecast of what the party has in store over the next few years and why its policies might spell fortune or failure for your portfolio.
What Revitalising Britain Means for Investment Portfolios
Since the start of its campaign for the 2024 general election, Labour has been clear in its intentions to correct the course of the UK’s economic decline and revitalise its economy. While we have previously explored the potential impact of the party’s housebuilding plans on the interests of private investors, its overarching plans for kickstarting the UK economy have deeper implications.
While the plans themselves may be common knowledge, what they entail requires a deeper look at some policies outlined in the Labour Party manifesto.
Changes to Non-Dom Rules
A key policy proposed by the new Labour government is to reform the laws regarding ‘non-doms’—individuals who live in the UK but have a permanent home outside the country. A person is considered domiciled for tax purposes if:
- The UK is their parents’ domicile at their birth.
- They renounce their original home and establish the UK as their permanent residence after 15 years.
Domicile is not solely a factor of physical presence within the UK. An individual can live in the UK for several years without being classified as UK-domiciled until they reach the 15-year mark and formally declare their desire to make the UK their new domicile.
Currently, UK-domiciled residents are taxed on an arising basis, meaning they pay taxes on their worldwide income and capital gains. In contrast, non-doms can opt for tax on a remittance basis, allowing them to pay UK taxes only on the income they bring into the UK. This tax loophole allows non-doms to legally keep income earned from foreign investments offshore to avoid UK taxes.
Starting April 6, 2025, the Labour Party plans to introduce a new residence-based tax system for non-doms that will eliminate this preferential tax treatment. Non-doms will be taxed at UK rates on their foreign income and gains regardless of whether that income is brought into the UK. This decision could potentially raise £2.6 billion for the UK economy.
Fortune or Failure for Your Portfolio?
These changes will significantly impact non-dom investors, who are more likely to have a high net worth than the average UK resident. 3 in 10 non-doms earn £5 million or more annually while fewer than 3 in 1,000 earn less than £100,000. With recent HM Revenue & Customs (HMRC) figures showing that 74,000 people claimed non-dom status in 2022-23, closing the non-dom tax loophole could drive many super-rich investors away from the UK.
Research from the Oxford Economics think tank suggests that the decision to change non-dom laws could cost the UK £1 billion as 63% of non-doms leave the country to avoid higher taxation. This could negatively impact traditional investment sectors, though investors with diversified portfolios may find their assets more resilient to any widespread shifts in capital.
Proposed Changes to Taxation on Carried Interest
From as far back as 2021, the Labour Party has held plans to raise an estimated £500 million for the UK economy by changing existing rules on carried interest. Carried interest – referring to the shares of profits made by equity fund managers on any investment deal for which they are responsible – is currently taxed at the capital gains tax rate instead of the income tax rate. As such, private equity fund managers currently pay taxes of 28% on their carried interest. Should Labour’s changes go forward, this tax would rise to 45%.
Fortune or Failure for Your Portfolio?
According to a 2020 study by the Resolution Foundation, only 2,000 individuals reported carried interest in 2016-17 and 2017-18. However, that interest has totalled over £2 billion a year, meaning the average recipient earns around £1 million in carried interest a year.
So far, Labour has been vague about how it plans to close the carried interest loophole. Speculation on upcoming changes has already prompted private equity stakeholders to push back against the Labour government. Earlier this year, Shadow Chancellor Rachel Reeves reiterated the party’s plans to up the rate on carried interest transactions, signalling that private equity is still very much within the party’s economic crosshairs.
Following Labour’s victory in the general election, some have even threatened to move their business overseas to avoid heftier taxes. Although details are awaiting confirmation, a mass transit of private equity from the UK to other countries could put individual and institutional investors alike at risk of major losses.
Labour’s New Industrial Strategy
As part of its drive to spur economic growth within the UK, Labour has vowed to support businesses through stronger economic institutions and a more stable policy environment, encouraging investors by providing them with a greater degree of certainty in the economic climate.
Though most of Labour’s policies emphasise supporting smaller firms and businesses, a range of business leaders from several industries expressed their support for the Labour Party and its pro-growth manifesto before the general election.
A proposed overhaul of the business rates system is expected to “level the playing field” for brick-and-mortar companies competing against online alternatives, reducing the costs of running physical businesses to reorient smaller businesses as the economic backbone of the UK. Likewise, the party’s mission-oriented approach to building a new industrial strategy will prioritise partnerships between the government and businesses to limit any barriers to long-term economic growth. The financial services industry especially will benefit from an emphasis on new technology, open banking and a pro-innovation regulatory framework.
Finally, a £7.3 billion National Wealth Fund will support growth within the clean energy and new technology sectors. This fund will be allocated as follows:
- £1.8 billion to upgrading ports and build supply chains across the UK
- £1.5 billion to support automotive industry gigafactories
- £2.5 billion to rebuilding the steel industry
- £1 billion to accelerating the deployment of carbon capture technology
- £500 million to supporting the manufacturing of green hydrogen.
This fund would aim to attract three pounds of private investment for every one pound of public investment, creating jobs and increasing the UK’s economic profile.
Fortune or Failure for Your Portfolio?
Labour’s focus on small business, brick-and-mortar and renewable energy will place several industries in the economic spotlight. This will likely include the construction, green technology and financial services industries.
By creating new opportunities for private investors and businesses to partner with government initiatives, the party aims to support the growth of ESG investing within the UK. This may serve as a boon to any investors who already prioritise social impact and ethical investment.
A Labour-Friendly Portfolio with Concept Capital Group
At Concept Capital Group, we offer consistent returns for investors seeking to hedge against (or cooperate with) the changes proposed by the Labour government. As specialists in real asset investment opportunities involving direct ownership, we offer a tangible asset in the form of a fully managed residential property for our clients.
Through the sustainable, efficient and cost-effective practice of modular construction, we accelerate the timeline for traditional property investment to more efficiently meet the growing demand for affordable housing within the UK. International investors can also invest confidently knowing that our homes are exempt from the restrictions that could threaten traditional property investment as the Labour government works to localise the UK economy.
For more information on our investment opportunities, book a call with our team today.
