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Changes to the Taxation of the Non-UK Domiciliary

Given the amount of legislation and comment on the subject over recent months, we thought it would be helpful to provide a brief summary of the state of play regarding the proposed changes in the taxation of those not domiciled in the UK.

Last Year’s Summer Budget’s Announcements

On 8th July last year, the government’s summer 2015 Budget announced that from 6th April 2017:-

  • non-UK domiciled individuals will become deemed domiciled for all tax purposes (Income Tax, Capital Gains Tax and Inheritance Tax) after they have been UK tax resident for 15 of the past 20 tax years, with the result that they will be taxed on their worldwide income and gains as they arise and their worldwide assets will be exposed to Inheritance Tax;
  • individuals who are born in the UK with a UK domicile of origin and who later return to the UK after having acquired a foreign domicile of choice, will reacquire their UK domicile status for UK tax purposes whilst tax resident in the UK;
  • UK residential property held through offshore structures will be exposed to Inheritance Tax; and
  • non-UK domiciled individuals who have established non-UK resident trusts before becoming deemed domiciled here, will not be taxed on the non-UK source income and gains retained in the trust; the trust will continue to enjoy exemption from Inheritance Tax on its non-UK assets; and future withdrawals from the trust will be taxed under new rules.

Since then, the government has published the draft legislation concerning deemed domicile for Income Tax and Capital Gains Tax purposes and, separately, for Inheritance Tax purposes, as well as the provisions concerning the returning UK domiciliary (first and second bullet points above).

This Year’s Budget Announcements

The 2016 Budget document has reaffirmed the government’s intention to proceed with all of the above changes and to incorporate them into the 2017 Finance Bill.

The 2016 Budget has also announced that:-

  • non-UK domiciliaries who become deemed domiciled in April 2017 can treat the base costs of their non-UK assets as being their market values as at 6 April 2017; and that
  • transitional provisions are to be introduced to provide certainty as to how the offshore funds belonging to those who become deemed domiciled under the 15 out of 20 year rule, are to be taxed upon remittance to the UK

This proposed rebasing of foreign assets is to be welcomed – assuming all prior gains are to be completely “washed out”. It remains to be seen whether this rebasing will also apply to those who become deemed domiciled after April 2017. At first sight, it seems that this rebasing will not apply to trustees or to matched trust gains.

It also remains to be seen whether the transitional provisions will be based upon the current “mixed account” rules (which set out a complex order for the matching of account withdrawals to the income receipts and realised gains within the account) or whether a flat rate of tax will be introduced.

Where To From Here?

Whilst the clarification of the new deemed domicile provisions is helpful, we still await clarification of the new rules for the future Inheritance Tax treatment of UK residential property and the future tax treatment of non-UK resident trusts which qualify for exemption from UK tax.

It is to be hoped that there will be some further clarity before the end of 2016. In any event, it seems likely that those who will become deemed domiciled on 6 April next year will be left with very little time in which to take decisions and implement them. We will, of course, continue to monitor the progress of these changes closely, and comment further as and when significant further details are available.

In the meantime, please contact us at, or through your usual Saffron contact, if you would like to discuss any of the above points.