Non-Dom Changes – An Update

Author:Mr Terence Pay

Two Finance Bills were released by the government in September only days apart: Finance (No. 2) Bill 2017, and a draft Finance Bill 2018. The first includes all the changes to the taxation of non-domiciliaries that were removed from the pre-election Finance Bill 2017, and which will take effect from 6 April 2017.

Changes affecting individuals born in the UK with a UK domicile of origin who return to the UK having acquired a domicile of choice in another jurisdiction (formerly domiciled residents) will also take effect from 6 April 2017, but these rules are outside the scope of this briefing.

Finance Bill 2018 re-introduces and provides more detail on some of the anti-avoidance provisions that were delayed due to the complexity of the legislation involved. These measures will take effect from 6 April 2018. There is therefore a small window of opportunity for individuals and trustees to review structures and implement any further tax planning before 6 April 2018.



Individuals who have been resident in the UK in 15 out of the past 20 tax years will be regarded as deemed domiciled for all UK tax purposes from their 16th year of residence, even though they may remain non-UK domiciled under general law. Part years of residence count towards the 15 years as well as any years of UK residence as a minor child.

From the date on which an individual becomes deemed domiciled under the new rules, they will no longer be able to access the remittance basis of taxation and will instead pay tax on their worldwide income and gains as they arise. Certain protections are available for income and gains arising in an offshore trust where assets are settled prior to the settlor becoming deemed domiciled.

Transitional Reliefs


Individuals who become deemed domiciled at 6 April 2017 can rebase directly held foreign assets to their market value on 5 April 2017 so that only the gain from 6 April 2017 is chargeable to capital gains tax (CGT) on a future disposal. Rebasing can apply on an asset by asset basis but does not extend to assets held in trust. Rebasing will apply automatically to a disposal unless the taxpayer makes an election for it not to apply.

To qualify for rebasing, all of the following conditions must be met:

the asset must have been owned personally by the individual on 5 April 2017, and it must not have been a UK asset at any time since 16 March 2016 (or the date of acquisition, if later), and the individual must have paid the remittance basis charge for at least one tax year before 2017/18. Whilst the pre-April 2017 portion of the gain is not taxable, a tax charge may arise if the asset was purchased with foreign income and gains, and the proceeds of sale are remitted to the UK.

Importantly, those who become deemed domiciled in a later tax year will not be eligible for automatic rebasing of their overseas assets. Tax planning is therefore essential for anyone who will fall within the new deemed domicile rules from April 2018 onwards.

Cleansing of mixed funds

All non-domiciled individuals (not just those who become deemed domiciled at 6 April 2017) will have until 5 April 2019 to 'cleanse' any mixed funds accounts. A mixed fund account is one which contains a mixture of capital, income and gains which may have arisen over a number of years and possibly from different sources.

Cleansing allows an individual to separate out their clean capital, income and gains, so that remittances to the UK can be better managed, for example, to enable the taxpayer to remit clean capital to the UK in priority to income and gains.

Cleansing can only apply where the component parts of the mixed fund can be clearly identified, but it is not necessary for all component parts to be clearly indentifiable. The government has clarified that where some, but not all, of the component parts can be identified (e.g. it is known that a mixed fund worth £100,000 comprises £75,000 clean capital but it is not clear how much of the remainder is income and gains), the amounts that can be identified (e.g. the £75,000 in this example) can be transferred to a new account or accounts. This would allow tax free remittances to be made to the UK from the new clean capital account.

It should be noted that only transfers made on the same day will qualify for segregation, so it is important to quantify the component parts as one exercise, and then make the relevant transfers to new accounts on the same day. Once an amount has been transferred out of a mixed fund account, this precludes the remaining mixed funds in the account from being further segregated.

Losing deemed domicile

Once an individual becomes deemed domiciled under the 15 out of 20 year rule, he can lose his deemed domicile status by remaining non-UK resident for at least six tax years. If he returns to the UK after six years of non-UK residence, the domicile clock will reset and he will only become deemed domiciled in the UK again once he has been resident for 15 years.

If, on the other hand, he returns before six tax years have elapsed, he will be regarded as deemed domiciled for all tax purposes from the date he becomes UK resident again.

For inheritance tax (IHT) purposes, deemed domicile status will fall away once an individual has been non-UK resident for at least three tax years. The individual will lose...

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