HM Treasury has released new consultation documents which provide further detail on the upcoming changes to the taxation of non-domiciled individuals (non-doms) and offshore structures which hold UK residential property.  

It has been confirmed that the new reforms will be effective from 6 April 2017. Previously there were rumours that the rule changes would be postponed or watered-down following the fallout from the EU Referendum vote.

This means that long-term UK resident non-doms (and their professional advisers) have a short window to review and/or re-arrange their affairs before these new rules come into force in April 2017. It is our thought that non-UK trust structures will remain an attractive option for non-doms, though these will need to be established prior to the individual becoming ‘deemed-domiciled’ (deemed-dom).

Overview of the Reforms

Further to our speedread of the earlier consultation document released in 2015, the new rules are broadly as follows:

  1. Non-doms
  • Become subject to the ‘15 year rule’, after 15 out of 20 tax years of UK tax residence (from April 2017 onwards) and become deemed-dom and taxed as if UK domiciled (subject to certain exemptions).
  • Deemed-doms will become subject to UK income tax and Capital Gain Tax (CGT) on their worldwide income and gains with no access to the remittance basis of taxation from the 16th tax year.
  • Deemed-doms will become exposed to UK Inheritance Tax (IHT )(broadly at 40%) on their worldwide asset base from the 16th tax year.
  • Deemed-doms can only break deemed-domicile (and reset the ‘15 year clock’) after 6 consecutive tax years of non-UK tax residence for income tax and CGT purposes. The position for IHT is different and the deemed-domicile status will fall away after 4 consecutive tax years of non-UK tax residence.
  • It has been confirmed that ‘split years’ and years of UK tax residence whilst a minor (under 18) will count for these purposes.
  1. ‘Returning UK doms’ (non-doms who were born in the UK with UK domicile of origin)
  • Will be regarded as UK domiciled whenever UK tax resident, even following acquisition of a domicile of choice outside of the UK. A short grace period is available for UK IHT purposes, though not for Income Tax and CGT and the remittance basis will be unavailable.
  • Offshore trusts created whilst non-UK resident and domiciled will cease to be ‘excluded property trusts’. This could create 10 year anniversary charges (though apportionment may be available) and filing obligations for trustees of such structures.
  1. Tax treatment of non-UK trusts established by non-doms
  • Assets (except UK residential property) held within trusts should not be exposed to UK IHT if the trust was established by a non-dom prior to becoming deemed-dom (it will retain its ‘excluded property’ status).
  • The position for the beneficiaries of a non-settlor interested trust will broadly remain the same except that if they are deemed-dom they will no longer be able to defer the tax charge relating to a distribution by electing into the remittance basis.
  • The position for settlor-interested trusts is complex but positive. It may be possible to defer the tax charge on foreign income and gains until a time when benefits are received by the settlor, their spouse, or minor child.
  • As a general point the proposed changes are advantageous as it relates to excluded property trusts established prior to April 2017 and in certain circumstances this could allow ‘gross roll-up’ of foreign income and gains without charge to UK tax.
  • The Government is considering taxing UK resident non-doms on the “taxable value of benefits received” basis (not just deemed-doms). Again, this could be very advantageous.
  1. IHT exposure for UK residential property held via offshore structures
  • Shares in offshore ‘close’ companies (or similar) will no longer be excluded from IHT where all or part of the value is derived (directly or indirectly) from UK residential property. This will also apply where the shares are owned by a trust.
  • Where a non-UK company holds UK residential property, a chargeable event for IHT purposes (after 6 April 2017) will include:
    • Death of the shareholder (of the non-UK company)
    • Redistribution of the share capital
    • Certain arrangements where shares are gifted
    • The 10 year anniversary of a trust which holds the shares.
  • IHT will be charged on the open market value of the property at the time of the relevant chargeable event.
  • Unfortunately the Government do not believe it would be appropriate to provide an incentive for de-enveloping and there is not expected to be a transitional provision.
  • HMRC will be given expanded powers to impose the IHT charge on indirectly-held UK residential property. It would appear, based on the consultation document that this may affect corporate service providers in certain circumstances as “a new liability will be imposed on any person who has legal ownership of the property, including any directors of the company which holds that property”.

Transitional Rules

There are a number of transitional rules and the ones which are most likely to be relevant are the two below:

  1. Rebasing foreign assets for CGT

The Government confirmed that individual assets could be rebased to their market value on 5 April 2017 for CGT purposes (i.e. there will be no CGT exposure on capital growth up to 5 April 2017), but further increases in value from 6 April 2017 would be subject to UK CGT. Further points to note:

  • The individual must have ceased to be able to elect into the remittance basis of taxation
  • Assets needed to have been foreign situs as at 8 July 2015 to qualify
  • Individuals who become deemed-domiciled in April 2017 will qualify, those who become deemed-domiciled after will not qualify
  • ‘Returning UK doms’ will not qualify.
  1. ‘Mixed Funds’

A relief will be available to those non-doms who were not born in the UK with a UK domicile of origin who have ‘mixed funds’ which may enable them to segregate their accounts. Until 5 April 2018 mixed funds can be separated into clean capital, foreign income and foreign gains (if the original source of funds can be identified). This should provide some certainty on bringing funds into the UK and avoid punitive tax charges in the future.


The consultation papers also include the effects the proposed changes will have on the following:

  • The use of foreign capital losses
  • The £2,000 de-minimus rule
  • Spousal elections in mixed-domicile marriages.

The document also invited views from tax practitioners on how Business Investment Relief could be reformed to encourage greater investment in the UK. Both consultation papers are available to read here: Reforms to the taxation of non-domiciles and Reforms to the taxation of non-domiciles: further consultation.

If you have any questions, please do not hesitate to contact any member of the Tax team at Edwin Coe.


Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing. This guide concerns the law in England and Wales and is intended for general guidance purposes only. It is essential to take specific legal advice before taking any action.

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