New domicile rules from 2017

New domicile rules from 2017

Tue 14 Jul 2015

On 6 April 2017 a simplification will be made that, for once, doesn’t flout the Trades Descriptions Act. The new deemed domicile rule will apply for all personal and trust taxation purposes unless something goes seriously wrong in the consultation process.

New deemed domicile rule

The Budget speech announced that non-domiciled individuals who have been resident in the UK for more than 15 out of the last 20 years will be treated as deemed UK domiciled for all UK taxes. The Treasury’s key points summary puts it differently, saying that a person who has been resident for 15 years out of the last 20 will be deemed domiciled, i.e. not more than 15 years. Which it is to be will be confirmed when the legislation is published.

The new rule will replace the existing 17 out of 20 rule for IHT purposes.  This will mean that all worldwide income and gains will become taxable in the UK as it arises (removing the opportunity to choose whether to be subject to tax only if remittances to the UK are made). There is no grandfathering for those already in the UK.  Deemed UK domicile will then only be shed by leaving the UK for five tax years.  Returning non-doms (i.e. who have been away for at least 5 tax years) will then be able to spend another 15 years in the UK before becoming deemed domiciled.

It is worth noting the wording used: “over 15 years” does not necessarily mean a complete 16 years’ presence is required. The test will be of residence in a year and split years will be included.

The new 15 year rule means that the £90,000 remittance base charge payable for those resident in the UK for 17 out of 20 years will be redundant, and will be repealed.  

The Government will consult on retaining a de minimis exemption to apply beyond 15 years if total unremitted foreign income and gains are less than £2,000 pa.  Consultation will also be held on the employment related securities provisions.

Deemed domicile means no remittance basis

It will no longer be possible for non-doms to essentially pick and choose when to pay tax in the UK on income and gains after being UK resident for more than 15 years. 

Planning options under the new deemed dom rules

It would appear that there may still be opportunities to plan ahead before becoming deemed UK domiciled and settle non-UK assets on an offshore trust which would still qualify for the existing IHT excluded property regime (but this will not be effective for UK residential property – see below). 

Income, gains and any benefits received from such trusts may still be subject to UK Income and Capital Gains Taxes from April 2017 but sheltering UK IHT may still be very attractive and advantageous to wealthy non-doms.  Of course, the detailed consultation documents to be published in due course may clarify to what extent non-doms can still capitalise from their now limited tax-advantaged status.

The restriction on turning UK residential property into a non-UK asset for IHT purposes (by enveloping it so that shares in a foreign company are held instead) is not surprising given that we have seen similar rules to bring enveloped properties into the UK SDLT and capital gains tax regimes over the past few years.  There will be no de minimis or exemptions from the IHT charge unlike the existing ‘Annual Tax on Enveloped Dwellings’ regime.

UK residential property

All UK residential property owned by non-doms will be chargeable to UK IHT regardless of whether it is held though an indirect structure such as an offshore company.  The IHT charge will be based on the ATED rules, but unlike ATED there will be no de minimis or reliefs (say for letting at arm’s length).  The intention is broadly that the same properties that are subject to non-residents’ CGT will be subject to IHT.  The Technical Guidance suggests that non-doms may now wish to consider de-enveloping and that they will consider the costs of doing so and other concerns during a consultation exercise.   

Expats resuming UK-residence may reacquire UK domicile

All individuals who had a UK domicile of origin at birth but have subsequently established a foreign domicile of choice will automatically be regarded as being UK domiciled in any period in which they are UK resident. This will override general law in every case and is only potentially subject to exception if a double taxation agreement applies.


The proposed restrictions should result in such non-doms being liable to UK tax whenever they are also UK tax resident.  However, it would appear that there could still be scope to reorganise the ownership of non-UK assets in an IHT efficient way when such individuals become non-UK tax resident for more than 5 tax years.

As is so often the case, we need to see how these proposals develop in the coming months but with potential opportunities for many non-doms to structure the ownership of their wealth in a more tax efficient way it might be a little premature to say that the system is now ‘fair’ regardless of domicile.

See also the Summer Budget blog

HMRC technical note

HMRC Technical Briefing IHT residential property changes


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