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What now for non-doms?

The government believes that long term UK resident non-doms should pay UK tax on their personal worldwide income and gains, regardless of whether the amounts are received in the UK or overseas.  They also believe that those with a UK domicile at birth, should pay tax on their worldwide income, if they return to live in the UK after a period abroad.

The government has undertaken to consult later in the year on the best way to deliver these reforms, with implementation planned for April 2017.  The Treasury expect the change will raise £1.5bn over the first five years once the rules change.  This will ultimately depend on how those affected respond to the reforms and could cost the Exchequer if many high earning non-doms decide to leave the UK.

What is domicile?

Domicile is a British legal concept.  It describes the country where you have your permanent home or where you are most closely connected.  It is not the same as nationality, citizenship or residence.  Everyone acquires a domicile at birth (their domicile of origin).  This is usually the country your father considered as his permanent home when you were born, or that of your mother if your parents were not married.

This means that you can be born in the UK, to parents living in the UK, but may be non-dom if your parents or grandparents were born abroad.

Your domicile of origin is retained unless you move overseas permanently and sever ties with the UK, taking on a new domicile of choice, or domicile of dependency for those under 16.

Current tax rules for non-doms

If you are UK domiciled and a UK tax resident then you will be taxed in the UK on ALL of your worldwide income and gains as they arise.

If you are not domiciled in the UK (non-dom) there are different tax rules that apply.  A UK resident non-dom will pay tax on ALL income and gains earned in the UK in the usual way.  They can, however, claim the ‘remittance basis’ so that overseas income and gains remaining offshore do not suffer UK tax.

For non-doms who have been resident in the UK for more than seven of the last nine years, the remittance basis comes with an annual charge of £30,000; this increases to £60,000 after 12 years and £90,000 after 17 years or more.  In practice, long-term non-doms with modest overseas wealth pay tax on their worldwide income and gains on an arising basis, and the ultra-wealthy choose to pay the remittance charge.

A UK resident non-dom who is resident for 17 out of the past 20 years is deemed to be UK dom for Inheritance tax purposes only.  This means that their worldwide estate will be caught by Inheritance tax but they can establish Excluded Property Trusts to limit exposure.

According to HMRC figures, 110,700 people claimed non-dom status in 2012/13 and they paid an estimated £6.2bn in income tax that year.  In the same year, just 5,000 paid the remittance charge.

What is changing?

There will be three new rules introduced:

The end of the permanent non-dom

From April 2017, the Government will abolish permanent non-dom status. Anyone who is resident in the UK for 15 of the past 20 years will be deemed to be UK domiciled for all UK taxes.  They will have to pay full UK taxes on worldwide income and gains, whether they remit them into the UK or not.  This means non-doms who have been resident in the UK since 2002 will come within the full UK tax regime in 2017; we await details on how split years of residence will be treated.  If a non-dom leaves the UK and is non-resident before 6 April 2017, they will not be caught by the new rule.

If they leave the UK after becoming deemed domicile under the new 15 year rule, they will remain deemed domicile for Inheritance tax for a further 5 tax years.

The current £90,000 remittance charge for those in the UK for 17 years will be redundant as they will be taxable on worldwide income after 15 years.  The £30,000 and £60,000 remittance basis charges remain unchanged.

Wealthy non-doms wishing to preserve the remittance basis will look to plan periods of tax residence very carefully.  Some non-doms will want to make sure they are tax resident in another country especially if they can receive favourable double taxation treaty relief on UK source income and gains.

Non-doms who set up an offshore trust before they become deemed domiciled under the new 15 year rule will not be taxed on trust income and gains retained in the trust.  At first sight this appears a relaxation to current settlor interested rules.  Long-term residents will be taxed on benefits, capital or income received from these trusts.  Trusts set up before the individual becomes deemed domiciled will continue to enjoy IHT ‘excluded property’ status.

Children who are born in the UK to parents who are non-dom will continue to inherit their parent’s non-dom status but will become deemed domicile in their own right under the 15/20 rule.

UK dom status sticks

From April 2017, anyone with a UK domicile of origin who leaves the UK to live permanently abroad, will be deemed a UK domicile for a further five years after they leave.  This is an increase from the current three year run-off period.

If they acquire a foreign domicile of choice but later return to the UK, they will be deemed domicile for all tax purposes once they become UK tax resident.  At present, they could return to the UK on a temporary basis and maintain their non-dom status.  As a result, they will no longer be able to benefit from any favourable tax treatment in respect of excluded property trusts set up whilst they were non-dom.

UK residential property

UK residential property has been singled out for special treatment.  Inheritance tax legislation will be amended so that it ‘looks through’ offshore companies and other structures, bringing the underlying UK residential property into charge.  Currently, where a non-dom or trust established by a non-dom holds residential property through an offshore company or partnership, it is not subject to Inheritance tax.  This may encourage owners to wind up complex structures but this could give rise to significant tax costs so government will consider the tax costs of ‘de-enveloping’ properties during consultation.


Targeted anti-avoidance legislation will be introduced to catch those who try to circumvent the rules.  The Disclosure of Tax Avoidance Schemes (DOTAS) will also apply, meaning that schemes attempting to avoid the new charges are likely to be caught.

A detailed consultation on the proposals will be issued later this year with draft legislation to follow and implementation in April 2017.  For those likely to be affected, it will be important to take specialist advice once there is greater clarity and legislation in place.

This article first appeared in IFA Magazine [1] on 20 August 2015.