A Fundamental Shift for Non-Doms
The UK government introduced sweeping changes to the way non-domiciled individuals are taxed once they become long-term residents of the UK. Effective from April 2017, these represent the most fundamental tax change non-doms living in the UK have ever faced.
For many, the question is whether to consider alternative solutions. Some will leave; others will remain and accept higher taxes. What is clear is that those approaching 15 tax years of UK residence need to plan ahead. Further changes introduced in 2017 also affect non-doms owning UK residential property through offshore companies, and those born in the UK with a UK domicile of origin who return, even temporarily.
The Remittance Basis
Under the previous regime, a non-domiciled individual could claim the remittance basis of taxation, meaning they paid no UK tax on foreign income and gains provided these were not brought ("remitted") into the UK. This regime was available free of charge for the first seven years, after which a remittance basis charge applied.
Deemed Domicile
Under the former rules, a person who was not domiciled in the UK automatically became deemed domiciled once they had been UK resident for 17 of the last 20 years — but only for inheritance tax purposes.
Under the new rules, a non-domiciled individual who has been UK resident for 15 of the last 20 tax years becomes automatically deemed domiciled for all tax purposes. This does not change their domicile status under general law, only for tax.
The Practical Result
The principal change is that non-doms can no longer access the remittance basis once they have been UK resident for 15 of the previous 20 tax years. They pay tax on their worldwide income and capital gains on an arising basis, regardless of whether the income or gains are remitted to the UK, and become subject to inheritance tax on their worldwide assets. To lose deemed domicile status they would generally need to leave the UK for six complete years, after which they could return and remain non-domiciled for a further 15 years, with access to the remittance basis on payment of the appropriate charge.
Exemptions for Existing Trusts
Trusts established before a non-dom becomes deemed domiciled continue to offer future protection. The government indicated that trust income and gains retained within the trust will not be taxed, even where the settlor or beneficiaries become deemed domiciled under the new rules. Such trusts also generally retain their inheritance tax treatment, so that non-UK assets held within them remain permanently excluded from inheritance tax.
New Rules for UK Residential Property
Non-domiciled individuals who own UK residential property through an offshore company — whether the shares are held personally or through a trust or foundation — are subject to inheritance tax as though the offshore company were transparent or did not exist. Previously, an offshore company allowed non-doms to convert an otherwise taxable UK property into non-taxable shares, sheltering the underlying property value from inheritance tax. That advantage was removed from April 2017 and applies to all offshore companies holding UK residential property.
How ASC Can Help
ASC analyses each client's particular circumstances and advises on tailored mitigation strategies, including the use of Cyprus as a jurisdiction for individuals reconsidering their UK residence and tax position. Contact us to discuss how the reforms affect you and the options available.