Chancellor continues his attack on non UK domiciled persons

Written by Anne Irvine on 10 July 2015

Deemed Domicile for all tax purposes

For many years non-UK domiciled individuals (non-doms) have enjoyed tax advantages in the UK tax system. Such individuals have been able to claim the remittance basis year by year and pay UK income tax or capital gains tax on foreign income or gains only when they are remitted to the UK.

There are further advantages for inheritance tax as non-doms are chargeable only on their UK situs assets. This has been seen as an unfair advantage by some commentators and for inheritance tax there has long been a concept of deemed domicile: if an individual has been resident in the UK for 17 out of 20 years, then he is deemed to be domiciled in the UK for inheritance tax and thereafter, is liable to inheritance tax on his worldwide assets. The concept of deemed domicile does not currently apply for other UK taxes and recent Governments have sought to tackle the issue for income tax and capital gains tax. This lead to the introduction of a "remittance basis charge" which requires non-doms to pay a fee to claim the remittance basis each year, ranging from £30,000 for more than 7 years residence out of the last 9 years up to £60,000 for 12 years residence out of the last 14 and £90,000 for 17 years residence out of the last 20. If the claim is not made in any year, the non-dom is taxed on his worldwide income and gains – in the same way as for UK doms.

An individual's domicile status is a matter of general law; generally an individual acquires the domicile of his father at birth, and he retains that domicile throughout his life unless he acquires a new domicile of choice by moving permanently somewhere else. Therefore if an individual is born with a non UK domicile, he can reside in the UK for many years without paying tax on his worldwide income and gains as long as he has not moved here "permanently" i.e. at some time in the future he intends to move overseas. 

This has lead the Chancellor, in the Summer 2015 budget, to introduce the concept of deemed domicile into the income tax and capital gains tax regimes from 6 April 2017 – a non-dom will be deemed to be domiciled in the UK for all UK tax purposes if he has been resident in the UK for more than 15 out of the preceding 20 tax years. He will therefore be deemed domiciled in the UK from his 16th year of tax residence. Note that this is one year earlier than the current inheritance tax regime, but will apply for inheritance tax as well as income tax and capital gains tax.

The remittance basis claim will remain in place as will the £30,000 and £60,000 remittance basis fees for non-domiciled individuals who have not become deemed domiciled.  Individuals who have been resident in the UK for more than 15 out of the preceding 20 years will pay income and capital gains taxes on their worldwide income and gains and inheritance tax on their worldwide estates.

There are further new provisions for individuals whose domicile at birth (the domicile of origin) was the UK but who later leave the UK and establish a non-UK domicile under the general law. Such individuals will retain their UK domical status for tax purposes for 5 years after departure and will re-acquire the UK domicile for tax purposes at any time in future if they are resident in the UK – even if they do not acquire a UK domicile under general law.

Excluded Property Trusts

Setting up an overseas trust to hold a non-dom’s assets continues to be an effective inheritance tax planning tool (these are known as "excluded property trusts"); such assets fall outside of the UK inheritance tax net and therefore provide excellent protection for a non-dom’s assets. These inheritance tax benefits continue after the individual has become domiciled or deemed domiciled in the UK – so long as they are set up and assets are transferred before becoming domiciled. 

A further advantage of these trusts currently is the "switching off" of capital gains tax charges on non-dom settlers (even on the remittance basis) in respect of gains arising to the trustees; on distribution of such gains, the remittance basis could be claimed subject to payment of the fee.  Under the new rules, once the individual has become deemed domiciled this protection is lost and, depending on the class of beneficiaries, the settlor will be charged to capital gains tax on trust assets on the arising basis.

UK residential property

In a separate press release HM Revenue and Customs gave details of provisions to prevent the value of UK residential property being effectively removed from a non-doms estate by holding it through a non-UK company as a non-UK asset. This will be achieved by the introduction of "look through" provisions so that the value of shares which is derived from UK residential property will fall into the UK estate of the non-dom. This will also affect such property held by the trustees of an excluded property trust through a non-UK company; previously the use of such a trust meant permanent exclusion from the inheritance tax estate; this will no longer be available  for UK residential property.


Non-dom individuals who arrived in the UK prior to 5th April 2003 and who have been resident here in all subsequent tax years will be deemed to be domiciled in the UK for all tax purposes from 6th April 2017. Such individuals should review their UK tax planning in detail.

Some strategies might include:

·         realising overseas chargeable gains before 5th April 2017

·         transferring assets (other than UK residential property) to an excluded property trust

·         removing UK residential property from existing excluded property trusts to avoid ATED charges and gains which will no longer be outweighed by the inheritance tax savings.

As the Government realises the issues are complex they will publish a consultation document with the intention of including the changes in the 2016 Finance Bill.  Some significant concessions arose out of a similar consultation in 2008, so it will be important to review the detailed proposals over the next few months.

If you have any questions regarding the changes to nom-doms, please contact Anne.