UK tax legislation update: taxation of non-doms

Author: Helena Luckhurst

This article is taken from Helena Luckhurst’s blog The Wealth Lawyer UK

Over the past couple of years, the Government has placed non-doms on notice of its intention to change the way in which they and their offshore trusts are taxed for UK tax purposes.  Now finally all previously trailed provisions have been reintroduced into draft legislation, so here is a brief reminder of the main provisions affecting the personal taxation of non-doms, with some practical pointers.  All of the following measures can be found in the Finance (No.2) Bill 2017:

  • Deemed domicile status: once a non-dom individual has been resident in the UK for 15 out of the previous 20 UK income tax years, the individual will no longer be able to claim the UK’s favourable remittance basis of taxation from the individual’s 16th year of residency.  This is confirmed to take effect from 6 April 2017.  When a deemed domiciled individual is UK resident, worldwide income and gains will be subject to UK tax.  Worldwide free estate becomes subject to Inheritance Tax, unless a double tax convention applies.
  • Formerly domiciled resident individuals:  individuals born in the UK with a UK domicile of origin but who leave the UK and acquire a foreign domicile of choice will not be eligible for the remittance basis of taxation if the individual becomes UK tax resident on their return to the UK from tax year 2017/2018 or later, but will have a one year grace period before becoming exposed to Inheritance Tax on their worldwide assets.  In addition, none of the tax protections for existing offshore trusts will apply and existing trusts will lose Inheritance Tax excluded property status in the individual’s second year of tax residency.  Rebasing and mixed fund cleansing (see below) are not available.
  • Trust protections: existing offshore trusts of settlors who become deemed UK domiciled will be able to roll up foreign income and gains tax free inside their offshore trusts, provided the trust is not ‘tainted’ by additions after deemed domiciled status commences and while no capital payments or benefits are received.  These trusts also continue to offer IHT protection.  Once tainted, trust protections are lost for good.  There appears to be no de minimis so be particularly careful here.
  • Rebasing opportunity for newly deemed domiciled individuals: provided qualifying conditions are met, non-dom individuals who become deemed domiciled on 6 April 2017 under the new rules will be able to dispose of foreign situated assets pregnant with pre 6 April 2017 gains and only pay UK Capital Gains Tax on gains accruing in the period on or after 6 April 2017 to date of disposal.  Note that this is not a relief from the tax consequences of remitting the sale proceeds to the UK.  Disposals must take place when the qualifying individual is deemed domiciled – this should not be treated as an open ended opportunity, therefore.
  • Mixed fund cleansing for all non-doms: a two year window starting on 6 April 2017 in which non-doms can segregate money in mixed fund accounts by transferring the income and capital gain element to another offshore account, enabling them to remit the clean capital element left behind in the original account without a UK tax charge.  Some uncertainty around the finer points of this opportunity remains.  Further guidance from HMRC is (over)due.  However, use this period to start examining account composition.

Helena Luckhurst, Partner, Fladgate LLP (


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