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Deemed UK domicile – the proposals

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13 January 2016

Another surprise announcement in the Summer Budget 2015 was for non-domiciled (non-dom) individuals. From April 2017, individuals who are not UK domiciled but have spent 15 out of the last 20 years in the UK will be treated as deemed domiciled for all UK tax purposes.

What is a non-dom?

A non-dom is an individual who is resident in the UK, but domiciled in another country under general law. Non-doms enjoy several tax advantages over UK domiciled individuals, including relief from inheritance tax for assets situated outside the UK, and access to the “remittance basis” meaning that UK income tax and capital gains tax is only due on foreign income or gains if wealth is brought into the country.

In recent years the tax net has tightened on non-doms, generally by imposing a time limit on how long these advantages may be enjoyed, or by paying an annual charge to continue to benefit from the remittance basis.

Current rules

Currently non-doms are deemed to be UK domiciled and subject to inheritance tax on their worldwide estate once they have been resident in the UK for 17 out of the last 20 years.

A charge to use the remittance basis for other income and gains will apply unless the individual has been resident in the UK for less than seven of the last nine tax years. The current remittance charges are £30,000 for individual’s resident for at least seven of the last nine tax years and £60,000 for individual’s resident for 12 of the last 14 tax years. From April 2015 a new remittance charge of £90,000 was also introduced for non-doms who have been resident in the UK for 17 out of the last 20 years.

New rules

As mentioned, any non-doms resident in the UK for 15 of the last 20 tax years will be treated as deemed domiciled in the UK from April 2017. All worldwide assets will be subject to inheritance tax in the UK two years earlier than under current rules and it will no longer be possible to claim the remittance basis for any foreign income and gains. The new £90,000 remittance charge will become redundant as anyone falling within this category will be automatically deemed domiciled.

In addition, individuals who were both born in the UK and acquired a UK domicile at birth but later left the UK and acquired a non-UK domicile of choice could be affected immediately at the point of return to the UK. Under the proposals as soon as they become UK resident again they will automatically be treated as UK domiciled.

Although not detailed in the announcement itself, the consultation suggests that the clock could be restarted for the new 15 year domicile rule if the individual becomes non-resident for six complete tax years. Whether this will lead to a number of non-doms heading off to sunnier climes for a six year holiday or not remains to be seen. The proposals are not yet set in stone so things could still change, but it is clear that the government is looking to tighten the rules for non-doms. Some planning might be possible before the new rules bed in but should be considered plenty of time in advance, and preferably before April 2016. If you would like any advice please get in touch with your usual Hazlewoods contact.