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Non-domiciled tax status

The government has announced that it will abolish permanent non-domicile tax status by changing the deemed domicile rules so that individuals who are UK resident cannot benefit from non UK domicile (“non-dom”) status indefinitely for tax purposes.

Current rules

As it stands, non-dom individuals pay Inheritance Tax (“IHT”) only on their UK assets and can make a claim to pay income tax and capital gains tax (“CGT”) on a remittance basis.

For IHT purposes, an individual is deemed domiciled in the UK if they have been a resident in the UK for at least 17 out of the last 20 tax years, or if they have been UK domiciled the last three calendar years.

There is no deemed domicile status for income tax or CGT purposes.

Proposed changes

The 15 year rule

Individuals who have been resident in the UK for 15 out if the last 20 tax years will be deemed domiciled in the UK for all tax purposes.

This means the individual will be liable to pay UK tax on their worldwide income and gain (on an arising basis) and to pay UK inheritance tax on their worldwide estate.

To lose their deemed domicile status, an individual will have to be a non-UK tax resident for at least 5 complete tax years. They could then return to the UK and would be able to spend another 15 years in the UK before becoming deemed domiciled in the UK again under the 15 year rule.

The 15 year rule will apply from 6 April 2017 when the Finance Bill 2016 takes effect.

The returning UK domiciled rule

Individuals who have a UK domicile of origin and have acquired domicile in another country will be deemed domiciled in the UK for all tax purposes as soon as they return to the UK and take up residence.

The returning UK domiciled rule will also apply from the 6 April 2017 and will affect all non-doms with a UK domicile of origin who have returned to the UK whether they return to the UK before or after the 6 April 2017.

IHT and UK residential properties held by offshore companies

Current rules

Non-doms are only liable to pay IHT on assets within their UK estate. Assets owned by non-doms located elsewhere in the world are treated as excluded property for IHT purposes. As a result of this, non-doms can own a UK residential property through an off shore company (“enveloping” the property) and not pay IHT on the property because the shares in the offshore company are treated as excluded property.

Proposed change

Property owned by non-doms, even through offshore companies, will be subject to IHT on the value of the property in the same way as property owned by UK domiciled individuals.

The new proposed rules do not extend to other classes of assets held by non-doms through offshore structure.

Individuals who did not “de-envelope” their properties despite the introduction of the Annual Tax on Enveloped Dwellings (“ATED”) regime in order to retain favourable IHT treatment may now reconsider and de-envelope their properties as there will be limited benefit to owning a property through an offshore company.

Remittance basis charge

Current rules

A non-dom who has been a UK resident 7 out of the previous 9 tax years is required to pay a remittance basis charge (RBC) of £30,000 if they wish to make a claim to pay tax on a remittance basis.

The charge increases to £60,000 to for those who have been a UK resident for 12 out of the previous 14 tax years and to £90,000 for those who have been a UK resident for 17 out of the previous 20 tax years.

Proposed change

In line with the proposed 15 year rule, the RBC for those who have been resident in the UK for 17 out of the previous 20 tax years will become redundant. Once an individual has been a tax resident for 15 years they will be treated as deemed domiciled in the UK and will be liable for tax on an arising basis.

The RBC rules will remain the same for individuals who have been tax resident for 7 out of 9 years and 12 out of 14 years.

The government will consult further on these proposals and will publish their findings after the 2015 summer recess. We will continue to provide updates on the proposals as they make their way through the legislative process.


For further information, please speak to Richard Monkcom, partner, or Katie Underhill, trainee solicitor, in Druces LLP’s Private Client team.

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