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30 June 2016

Non-dom reforms: What can you do now?

In his Budget speech in July 2015, the Chancellor announced the abolition of “permanent” non-domiciled status with effect from 6 April 2017. Almost a year later, we are still waiting for many important details.

With the implications of the Brexit vote absorbing the Treasury’s attention, it seems unlikely that there will be any certainty regarding the changes to the regime for non-UK domiciliaries until the autumn, at the earliest; potentially leaving clients and their advisers with precious little time to act before the regime comes into force. In this article we consider some key issues which advisers can start to discuss with their clients so that they will be ready to take any necessary steps as soon as the position becomes clearer.

We have made the assumption below that the Government has the ability and will to keep to its self-imposed 6 April 2017 deadline for these reforms. In view of the slow progress that the Treasury has made with this so far, and the referendum result, this is looking increasingly doubtful. However, it would be complacent to proceed on the basis that there will definitely be a postponement.

Based on the available information, the new regime is likely to have the following main features:

  • Non-domiciled individuals who are resident in the UK for at least 15 out of the preceding 20 tax years will be deemed to be domiciled in the UK for all tax purposes (income tax, capital gains tax and inheritance tax) from the start of the sixteenth year. This means that they will pay UK income tax and capital gains tax on their worldwide income and gains as they arise and inheritance tax on worldwide assets.
  • Stricter rules will apply to individuals who were born in the UK and have a UK domicile of origin. They will be deemed to be domiciled in the UK if UK resident (possibly with a grace period for those returning to work in the UK temporarily, but this is yet to be confirmed).
  • Certain non-UK resident trusts will have a privileged status. The assets outside the UK of a non-UK resident trust settled by a non-domiciled individual before the individual became deemed domiciled will remain ring-fenced from income tax, capital gains tax and inheritance tax. The individual will be liable to tax on receipt of “benefits” from the trust although it is not known how the benefits regime will operate.
  • Some form of capital gains tax “rebasing” will be available for individuals becoming deemed domiciled on 6 April 2017, such that only the post-6 April 2017 element of any gain will be taxable on an arising basis. It is not known if the remittance basis will still apply to the pre-6 April 2017 element of the gain.

Once the details of the new regime are known, the period before 6 April 2017 is going to be extremely busy for non-UK domiciled clients and their advisers. Any preparatory work that can be undertaken now is likely to pay off in ensuring that clients have sufficient time to restructure their affairs. Despite the uncertainty surrounding some of the details, we have enough information to know that advisers will need to focus on the following areas:

New accounts

Start the process of identifying where new post-5 April 2017 accounts will be required, or will be desirable, for current remittance basis users who will become deemed domiciled under the new regime. 
Post-5 April 2017 income accounts should receive the income generated by existing accounts because that income will be taxable on an arising basis and so will not be subject to further tax if remitted. Pre 6-April 2017 income, on the other hand, will remain taxable if remitted, so the post-5 April 2017 income should be used in priority for UK expenditure.

Consideration should also be given to creating new accounts to receive the proceeds of assets sold at a gain, depending on whether those assets were purchased using pre-6 April 2017 income/gains or not. Unfortunately clients who already have a multiplicity of accounts will face further complication.

Investment mandate

Start considering how the new regime will affect the client’s investment strategy. For example, restrictions on investing in UK situs assets may need to remain in place if the investments are made using pre-6 April 2017 income and gains which would be taxable if remitted.

Restrictions on investing in UK assets may however be lifted for investments made from “clean capital”, which will include post-5 April 2017 income. If a client has been investing in non-reporting funds (which give rise to gains taxed at income tax rates), consider whether there should be a switch to reporting funds.

Capital gains position

Review assets standing at a gain and at a loss. Depending on how the capital gains tax rebasing operates, it may be that it is preferable to “manually” rebase assets – for example, by selling them, or by making a gift – before 6 April 2017 rather than relying on automatic rebasing. If clients have an accurate picture of their overall capital gains tax position then they will be better placed to act once the details are known.


For clients who are not yet deemed domiciled for inheritance tax purposes, consider which assets might be suitable to transfer into trust. Transferring liquid assets into trust should be relatively straightforward but more preparatory work may be required in relation to investments with transfer restrictions, or real estate.

Trust planning can also be more complicated where the settlor or beneficiaries have connections to the US and certain other jurisdictions, in which case it will be advisable to start planning early.

Tax efficient structures

For clients who are already deemed domiciled for inheritance tax purposes and so limited in their ability to create trusts, start to consider alternative structures which could reduce the client’s worldwide liability to tax. These include holding assets in a suitable insurance bond, or through a UK company which will pay corporation tax.

Clients with a UK origin

Identify clients born in the UK with a UK domicile of origin who currently claim to be non-domiciled, and review any structures established by them. It will be particularly important to analyse the implications of the new regime for any trust structures and to consider whether the client should be excluded from benefit, or the structure collapsed, before the new regime comes into force.

Tax residency

Some clients will consider ceasing to be UK resident. Others may remain UK resident for general purposes but claim residence elsewhere for the purpose of a double tax treaty. It will be important to review well in advance of 6 April 2017 what steps the client will need to take to break residency. The statutory residence test should provide certainty as to a client’s residency status, but the rules are extremely complex and formal advice is often required.

This article was written by Dominic Lawrance.

For more information, please contact your usual Charles Russell Speechlys contact, or Dominic on +44 (0)20 7427 6749 or