2017 Changes for Non-doms

2017 Changes for Non-doms


From 6 April 2017 major changes will be made to the way individuals who are not domiciled in the UK (“nondoms”) will be treated. After a long wait, we now have draft legislation on most of the forthcoming changes and a better idea of the wide-reaching impact the changes are likely to have.

In big picture terms, it is important for non-doms to review their current situation and structures as quickly as possible, in order to assess what the new regime will mean for them from 6 April 2017 and whether they should undertake any planning before then. It remains the case that there are opportunities now for many people that will cease to exist come 6 April 2017. Although many non-doms may have been in the UK for many years and feel comfortable that they understand the UK tax landscape as it applies to them, these rules are being significantly overhauled and non-doms should seek advice on their position as soon as possible.


We set out a more detailed overview of the proposed changes below. The proposals summarised in this briefing note are complex and we are only able to provide an overview of the changes and their potential consequences here. The practical consequence, however, is that all UK resident non-doms, deemed domiciliaries and trustees of non-UK resident trusts should be seeking professional advice in relation to their UK tax position and their specific circumstances before 6 April 2017.

Your affairs, including your assets, investments and any structures with which you are connected should be reviewed with a view to taking any necessary action, for example:

  • Considering whether it would be appropriate to create an offshore trust or, indeed, whether existing offshore trusts should be collapsed or amended - the solution will not be the same for everyone as the new rules are extremely complex and will depend on a variety of factors. It is likely, however, that setting up a new trust will be of particular benefit to individuals who are not yet deemed domiciled.
  • Ascertaining which of your assets are eligible to be re-based for capital gains tax purposes (if you will become deemed domiciled on 6 April 2017 only - this opportunity will not be available for anyone becoming deemed domiciled at any other time). Many types of asset will be able to be re-based, but this will not be the case where they are held in complex multi-layered structures and it is not yet clear how assets held in partnerships will be treated. It may be necessary to consider whether any such structures should be simplified or collapsed.
  • Establishing whether any existing offshore trusts you have created will have “protected” status under the new rules and obtaining guidelines on how to ensure that such trusts are not inadvertently “tainted” after 6 April 2017 as, once protected status is lost, it will be lost forever. In particular, trust structures which benefit from a loan from the settlor should be reviewed as a matter of urgency.
  • Considering the tax consequences of distributing benefits from offshore trusts in future tax years and whether steps can be taken now to reduce the future tax burden, for example making distributions in this tax year to take advantage of the current tax rules and (for some people) the last chance to make use of the remittance basis, creating new trusts or restructuring existing arrangements. 
  • Collapsing any “envelopes” through which you hold UK-situated residential property.

The proposals also mean that your affairs may need to be run differently from 6 April 2017 onwards and advice should be sought in this respect, including:

  • The way your bank accounts are set up and run.
  • Your investment structure and the assets in which you invest.
  • Your structures generally as, following the changes, it may be that the compliance and running costs of some complex structures outweigh their benefits.
  • Taking advantage of the two year window to “un-mix” any offshore cash accounts holding mixed funds.

Where changes are made, it would also be sensible to review your Will and wider estate planning.


Non-doms are able to claim to pay tax on the remittance basis – which means, broadly, that foreign investment income and gains are not taxed in the UK unless they are brought to the UK. An annual charge is payable by longer term residents in order to access this favourable treatment. Non-doms are also not subject to UK inheritance tax (“IHT”) on UK assets unless they are treated as “deemed domiciled” for IHT purposes by virtue of having been resident in the UK for 17 out of the last 20 years. Non-doms who are deemed domiciled pay IHT on their worldwide assets.


Restrictions on claiming non-dom status

The proposed changes will restrict the availability for individuals to claim non-dom status in two key ways – a tightening of the existing rules on deemed domicile and the introduction of a brand new category of deemed domiciliary.

With effect from 6 April 2017 individuals who are UK tax resident for more than 15 of the past 20 tax years will be deemed domiciled in the UK for all tax purposes. For anyone who has been continuously UK resident since 2002/03, this will mean that they become deemed domiciled on 6 April 2017 (unless they cease to be UK resident before that date). Deemed domiciled individuals will not be able to access the remittance basis – this means that all income and gains will be subject to UK tax regardless of where they arise – and such individuals will also be subject to IHT on their worldwide assets.

In addition, a UK resident who was born in the UK with a UK domicile of origin, but who subsequently left the UK and acquired a non-UK domicile of dependency or choice before returning to the UK (but maintains that foreign domicile as a matter of general law) will, from 6 April 2017, also be deemed to be domiciled in the UK for all tax purposes.

Individuals who will become deemed domiciled on 6 April 2017 as a result of either of these provisions should seek urgent advice to ensure that their affairs are in order and that any tax planning is done while there is still time. Those who are likely to become deemed domiciled in the next few years should also start to review their position in order to take advantage of the tax planning opportunities while they remain non-doms. For example, the government has confirmed that individuals becoming deemed domiciled (other than those who are deemed domiciled because they were born with a UK domicile of origin) on 6 April 2017 (only) who meet certain other criteria will have an opportunity to re-base many (although not all) of their non-UK assets for capital gains tax purposes. There will also be a limited (two years from 6 April 2017) window during which cash accounts holding mixed funds (i.e. different types of income, capital and principal) can be un-mixed. A combination of the re-basing rule and the un-mixing rule could prove a powerful planning opportunity to generate clean capital for individuals with large unrealised gains.

The position for offshore trusts

A change in the status of the settlor of a trust from non-UK to UK domiciled has always had a significant effect on the way the UK is able to tax income and gains arising in and being distributed out of that trust, as well as its potential exposure to IHT. The proposed changes amend these rules in a variety of ways, both expected and unexpected, and it is therefore essential that any non-doms who have set up trusts in anticipation of becoming deemed domiciled, and are about to become so, seek advice in relation to the structure. In some cases (for longer term residents becoming deemed domiciled) a special “protected” status may be available and it will be important to take advice to ensure that this is not inadvertently lost as, once lost, it will be lost forever. For those born with a UK domicile of origin who return to the UK, protected status will not be available and it may be necessary to review their current structures and consider whether to take steps to collapse them.

It is also important to understand that some brand new concepts have also been introduced in the name of anti-avoidance. For example, it will no longer be possible to “wash-out” stockpiled trust gains in favour of nonresident beneficiaries, which up until now has been a common (and uncontentious) planning technique to minimise UK capital gains tax when capital distributions are made to UK resident beneficiaries. Furthermore, it is not clear from the draft legislation whether any previously washed out trust gains will be brought back into account – we are hoping this will be clarified soon. A new “anti-recycling” rule will also be introduced to address concerns that some trusts might be collapsed in favour of a non-UK resident or remittance basis beneficiary, who might in turn pass those funds onto another beneficiary (who would have paid tax had they received the funds directly from the trust) after a period of time. It is therefore proposed that should such an onward gift take place within three years of the initial distribution, the ultimate recipient beneficiary would be taxed as if they had received the distribution directly from the trust.

Many of the proposed changes will affect the taxation by the UK of all non-UK resident settlements, even where the settlor has been UK domiciled for many years. All trustees of non-UK resident settlements should therefore seek advice in order to understand the new anti-avoidance provisions.

IHT and UK residential property

There will also be changes to the way residential property is taxed from an IHT perspective. Currently, a nondom who holds UK residential property via an offshore company is treated as holding non-UK assets (i.e. the shares in the offshore company) for IHT purposes. So, if the non-dom is not yet deemed domiciled for IHT purposes, there is no IHT in respect of the value of the UK residential property. From 6 April 2017, such structures will be “looked through” meaning that IHT will be due and will be calculated by reference to the value of the underlying property. While it was widely known for some time that the government intended to make this change, further new (and more unexpected) provisions have also been introduced in relation to loans. Broadly speaking, it will be permissible for loans to be deducted from the value of the property in question (although the value of the loan may be pro-rated where the loan is secured against both the property and other non-UK assets). The loan receivable itself will become a deemed UK situs asset. That is to say that, if one offshore individual lent money to another offshore individual in order to facilitate the purchase of a UK property, the individual who lent the money may find themselves within the scope to IHT tax on that loan.

Any collateral provided for the loan will also be within the scope of IHT. The (somewhat surprising) effect of these changes is that the total value exposed to IHT could be greater than the value of the UK residential property.

It remains the case that offshore holding structures for UK residential property need to be reviewed urgently as planning opportunities may well exist between now and 5 April 2017 while many holding structures still constitute excluded property. However, such planning opportunities may fall away come 6 April 2017.

Particular problems may arise for offshore trusts where the settlor is UK resident as, in order to prevent 10 year charges/gift with reservation of benefit risks, it may be necessary to distribute the property from the structure – however, it may not be possible to do this after 6 April 2017 without incurring a tax charge for the settlor.

For further information about the above, please telephone or email any of the key individuals listed or your usual contact at Stevens & Bolton LLP.

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