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The Taxation of Non-UK Domiciliaries – Consultation Paper Dated 18 August 2016


This Consultation Paper makes clear that most of the proposed changes to the taxation of non-UK doms are to be implemented with effect from 6 April 2017, as originally outlined in the Summer Budget of 8 July 2015.

Whilst this Consultation will close on 20 October, it seems clear that much of the detail has been decided. Some of the legislation has already been drafted.

UK Deemed Domicile


Non-UK doms will become deemed domiciled for all tax purposes once they have been UK tax resident for at least 15 out of the past 20 tax years (“15 year rule”) and “split years” will count towards the 15 years. Therefore an individual could become deemed domiciled here for Inheritance Tax purposes after being resident here for just over 13 calendar years.

UK doms (who have a UK domicile of origin) who return to the UK having acquired a non-UK domicile of choice will be treated as being deemed domiciled. However, for Inheritance Tax purposes only, they will become deemed domiciled after they have been resident for at least one of the two tax years prior to the year in question.


A deemed domiciled individual who leaves the UK, and remains non-UK tax resident, will cease to be deemed domiciled for IHT purposes once they have been non UK tax resident for more than 4 consecutive tax years. For returning deemed domiciled individuals, it will be necessary to be non-resident for 6 complete tax years in order to break Inheritance Tax deemed domicile.

Transitional Arrangements

Transitional arrangements are to be made for those who ceased to be UK tax resident before 8 July 2015 and subsequently return here, and for those who left the UK before becoming deemed domiciled under the 17 out of 20 year rule.

Remittance Basis Taxation

When a non-UK dom becomes deemed domiciled under the 15 year rule:-

    • the remittance basis of taxation will no longer be available, so the non-UK dom will be taxed on his worldwide income and gains;
    • the annual remittance basis charge will no longer be payable; and
    • the non-UK dom will be liable to Inheritance Tax on his directly held worldwide assets.

Capital Gains Tax Rebasing

Non-UK doms who become deemed domiciled in April 2017 because they have been UK tax resident for 15 of the past 20 years, and who have paid the remittance basis charge in any year before April 2017, will be able to rebase directly held foreign assets which they held as at 8 July 2015 to their market value on 5 April 2017. As a result, any gain which accrued before April 2017 will not be chargeable to Capital Gains Tax.

The rebasing will apply on an asset by asset basis, and if the asset has been acquired with clean capital then the gain which has accrued prior to April 2017 could be brought to the UK tax-free.

Non-UK doms who become deemed domiciled after April 2017, and those who become deemed domiciled because they were born with a UK domicile of origin, will not be able to rebase their foreign assets.

Cleansing of Accounts Containing Mixed Funds

Non-UK doms (whether or not they become deemed domiciled in April 2017 or are UK tax resident) will have a transitional period of one tax year from April 2017 in which to separate out the constituent parts (eg income, gains, capital) of their mixed accounts, providing they can determine all the component parts of the mixed account. They will then be able to remit from each of the newly segregated accounts as they wish, and pay the appropriate amount of tax.

This cleansing facility will apply only to amounts deposited in bank and similar accounts, and it will not apply to assets acquired out of mixed funds. However, an individual will be able to sell an overseas asset during the transitional year, and separate the sale proceeds in the same way as with any other mixed account.

This “cleansing” facility will be available to any non-dom who was not born in the UK with a UK domicile of origin, and whether or not the non-dom will become deemed domiciled in April 2017. It will also be available to individuals who have ceased to be UK tax resident.

Non-UK Trusts

Non-UK income and non-UK gains of non-UK trusts which a settlor establishes before he becomes deemed domiciled are to be protected, and will not be liable to UK taxes (Income Tax and Capital Gains Tax) provided that:-

  • no property is added to the trust (whether by the settlor or any other person) after the date upon which the settlor becomes deemed domiciled; and
  • the settlor and the settlor’s spouse, minor children and/or stepchildren do not receive any benefits from the trust.

This “protection” will not be available for income received by an overseas company underlying the trust, unless the income is paid up to the trust by way of dividends.

Otherwise, the income and gains of the trust will be attributed to the settlor and taxed in his hands on the arising basis.

Excluded property offshore trusts will continue to enjoy exemption from Inheritance Tax (except in relation to UK residential property – see below), whether or not the income and gains of the trust are attributed to the settlor and taxed in his hands.

UK Residential Property Held Within Offshore Trust Structures

Inheritance Tax will be imposed on the value of UK residential property however the residential property is owned, and offshore structures will not provide any exemption from Inheritance Tax. Therefore, where an estate or trust holds shares in an overseas close company which in turn owns UK residential property, the estate or trust will be within the charge to Inheritance Tax to the extent that the value of those shares relates to the UK residential property.  Relevant debts which relate exclusively to the property, such as amounts outstanding on a mortgage which was taken out to purchase the property, will be taken into account and reduce the taxable value of the property.

Loans between connected parties are to be disregarded. A targeted anti-avoidance rule is to be introduced, the effect of which will be to block any arrangements which are intended to avoid or mitigate an Inheritance Tax charge on UK residential property.  New reporting requirements are to be introduced, and HMRC is to be given additional powers which will prevent a property from being sold until any outstanding Inheritance Tax has been paid.

Whilst the government previously indicated that it would consider the costs associated with dismantling offshore company structures which own UK residential property, it has now indicated that “it does not think it would be appropriate to provide any incentive to encourage individuals to exit from their enveloped structures at this time”.

The Annual Tax on Enveloped Dwellings will continue to be payable in respect of residential properties held within offshore company structures.

Business Investment Relief

The government plans to extend the availability of this relief, and possibly widen the categories of investments which qualify for relief.

Where to from Here?

Whilst these changes will significantly restrict the tax benefits which non-doms have enjoyed, there are opportunities to mitigate their impact.  It is to be hoped that there will be further clarification of the new rules before the end of 2016, but it is clear that those who are affected by the changes have very little time in which to take decisions and implement them.

We would strongly recommend that all those affected by the changes seek an urgent review of their current position and the options available to them.

If you would like to discuss any of the matters raised in this note, please contact us at, or your usual Saffron adviser.