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Abolishing the permanency of non-dom status – consultation update

At the Summer Budget 2015, the Government announced a series of changes to tax rules for people who are not domiciled in the UK, referred to as non-domiciled or non-dom.

The consultation document set out the detail of the changes and introduced the concept of ‘deemed-domicile’, so that long term residents of the UK can’t claim to be non-UK domiciled for tax purposes. The new rules also look to stop someone who was born in the UK, and therefore UK domiciled at birth, claiming they are not domiciled while they are living in the UK.

The response paper confirms little change will be made to the rules described in the September consultation. However some points of interest were as follows.

  • Years resident in the UK whilst under 18 will count towards the test of deemed-domicile.
  • Split years for residence will count as a whole year towards the test of deemed-domicile.
  • The period of time for a deemed domicile to lose a deemed-domicile status after leaving the UK has been reduced from the proposed 6 years to 4.
  • Where property is added to a ‘protected settlement’ i.e. one created prior to becoming deemed-domicile, after the settlor is considered deemed domicile it will lose its protection.
  • Individuals can rebase the value of foreign assets from 6th April 2017 for CGT purposes.

The broader rules are summarised below.

Two key scenarios are being tackled and the Government differentiates between the two groups. These are referred to as ‘long term resident’ and ‘born in the UK’.
Under current rules individuals who are resident in the UK but not domiciled:

  • are able to claim tax relief on overseas workdays (in first 3 years in UK)
  • are liable to UK income and capital gains which arise in the UK but,
  • can choose to pay UK tax on their foreign income and capital gains only if/when remitted to the UK (known as the remittance basis)

Those individuals who claim to be taxed under the remittance basis rules had to pay a charge which was staggered depending on the length of time they had been resident:

Years of residence Charge applicable from 1 April 2015
7 of previous 9 years £30,000
12 of previous 14 years £60,000
17 of previous 20 years £90,000


Long term resident

Under this ‘group’ the rules will be that any individual who has lived in the UK for 15 of the past 20 tax years will be ‘deemed UK domiciled’. Once deemed UK domicile, an individual will no longer be able to use the remittance basis of tax described above. Their worldwide income and gains will be taxable (Income Tax and Capital Gains Tax) and worldwide assets will also be subject to Inheritance Tax (IHT). These changes will take effect from April 2017 and will make the £90,000 charge, above, redundant.

The proposals also include an allowance for those individuals who are ‘internationally mobile’, where a 4 year non-residence period (previously 6 in the original consultation) can avoid the deemed-domicile status applying. This would apply for example to someone who is resident for 15 years in the UK, then leaves the UK and remains non-resident for 4 years. On return to the UK they can claim non-dom status again for a further 15 years before they would be deemed-domicile.

The number of years for testing will include ‘any year of UK residence’, this will include years while the individual is under the age of 18 as well as years which are considered ‘split years’.

Further implications of being deemed UK domiciled include:

Income from overseas pensions

Pension income arising from outside the UK is currently taxed with a 10% deduction. The proposals do not look to change this position. However those individuals currently receiving pensions income from overseas could opt to be taxed under the remittance rules instead. The effect of the deemed-domicile rule is that these individuals could no longer be taxed under remittance rules.

Capital Losses election

Individuals who acquire a deemed-domicile status will be subject to tax on worldwide gains and therefore the government believes that they should also have access to UK and foreign capital losses in the same way as a UK domiciliary.

Potentially exempt transfers

The proposals confirm that any potentially exempt transfers (PETs), made by someone who is not domiciled in the UK (assuming the gift is excluded property) but later becomes deemed-domicile and die within 7 years of the PET, are not included in the death estate.

Spousal election

Where a non-dom spouse elects to be considered domicile in the UK, they can access an unlimited IHT exemption for gifts between spouses. Currently a 4 year period must pass before the UK connection can be broken. Consideration is to be given to whether to increase the 4 year period to 6.

Born in the UK

The rules for this group are that any individuals born in the UK with a UK domicile should not be able to benefit from the non-dom status while resident in the UK.

This includes income, gains and IHT; however income and gains arising overseas in split years will not be taxable in the UK. For example:

Tom was born in the UK and is UK domiciled. He leaves to travel the world and settles in South Africa, cutting all ties with the UK and elects to change his domicile. 20 years later Tom returns to the UK following the death of his mother and decides to stay for a period of time. During his time back in the UK he is considered resident under the statutory residency tests and therefore he is once again considered domiciled and his worldwide income, gains and assets are subject to UK tax (Income Tax, CGT, and IHT).

If/when the individual leaves the UK again, and assuming they retain their foreign domicile status under general law, they will not be treated as domiciled once they are no longer considered resident – unless they have been resident for 15 of the past 20 tax years. So the domiciled status is a temporary one for the short period they return to the UK.

Treatment of offshore trusts

‘Long term resident’

The government think it is fair for any individual who becomes deemed-domicile under the new rules to pay tax on benefits they receive from any offshore trust. There is however no intention to apply UK tax to individuals who have settled property in offshore trusts, while neither they nor their spouse/children receives any benefit from it.
In terms of the IHT treatment of property settled within an excluded property trust, where these are established by a non-dom, the assets will remain outside the estate even if that individual becomes deemed-domiciled later.

‘Born in the UK’

There will be no protection for offshore trusts in this ‘group’ either in terms of income/gains or IHT where the individual is resident in the UK. Excluded property rules will be changed so that an individual born in the UK with a UK domicile can’t benefit from creating an excluded property even if they created it after acquiring an overseas domicile and when non-resident in the UK.
The new rules confirm that, on return to the UK (and meeting the statutory residence test), worldwide assets will be liable to IHT, including any assets held within the excluded property trust. Relevant property regime will also apply for any periods the settlor is UK resident, so trustees will need to consider whether a 10 year anniversary charge arises.


Created, September 2016

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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