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Draft legislation on non-dom tax changes

Private Clients - 21 Sep 2017

The draft second Finance Bill of 2017 was published on 8 September 2017.  This includes the legislation relating to the changes for non-domiciled individuals, UK residential property held in offshore structures and changes to the taxation of offshore trusts.  The draft bill is moving swiftly through the House of Commons and is due to go to the committee stage on 17 October.  Therefore it is anticipated that it should be enacted in late November 2017.  There have been no major changes to the legislation since it was cut from the Finance Act 2017 and below recaps what the current draft legislation proposes and steps which should be considered.

Returning UK doms

Individuals who were born in the UK with a UK domicile of origin will be treated as UK domiciled for income and capital gains tax purposes from 6 April 2017 if they are already UK resident or otherwise in the year they become UK resident.  This means foreign income and gains will be taxable on the arising basis with no option to claim the remittance basis.  They will be deemed UK domiciled for inheritance tax (IHT), again from 6 April 2017, or for individuals returning to the UK, from the second tax year of residence post 5 April 2017. Once treated as UK domiciled for IHT purposes worldwide assets will be subject to UK IHT including any trusts created whilst non-UK domiciled.

Non doms

Non-domiciled individuals who have been resident in the UK for 15 of the last 20 tax years and at least one of the last four tax years will be UK deemed domiciled for income tax, capital gains tax and inheritance tax from the start of their 16th year of residence.  In order to avoid these provisions it will be necessary to leave the UK at the end of the 14th year of residence.

UK residential property

UK residential property held directly or through a trust or offshore company/partnership and certain loans or collateral provided to fund the purchase will be subject to UK IHT on the death of the owner or if held via trust on a ten year anniversary date or where the property is distributed from the trust.  On sale of an indirectly held property, the proceeds will remain within the scope of IHT in the same way as the property itself for a further two years.

Potential opportunities

Various measures will be in place which for some individuals could lessen the impact of the new regime.  These include:


Individuals who become deemed domicile from 6 April 2017 and who have paid the remittance basis charge at least once can rebase assets to their 5 April 2017 value provided the assets were situated outside the UK between 16 March 2016 (or purchase if later)and 5 April 2017.  The rebasing relief is automatic however it will be possible to disapply the rebasing by election.  For our US connected clients this will mean that the part of the gain which is not taxable in the UK because of the rebasing election will be taxable in the US offering little in terms of tax benefit.  However the rebasing election will offer the opportunity to reduce any element of foreign exchange gain which would otherwise form part of the gain in the UK.

Mixed Funds

There will be a two year window from 6 April 2017 for non-domiciled individuals (but not returning UK doms) who have used the remittance basis to segregate mixed funds held in bank accounts.  This is aimed at allowing non-doms to segregate clean capital, capital gains and income so that funds which can be remitted to the UK tax free or at a lower tax rate can be identified.  There is little guidance on how this will work in practice and the current draft legislation will require some amendments for it to work as intended.  For clients who have long standing bank accounts with lots of activity each year the costs involved in segregating the entire account may be prohibitive but in some cases partial analysis may be possible.

Foreign capital losses

Remittance basis users who did not make the foreign loss election and have been unable to use foreign capital losses to date will be able to use foreign losses realised post deemed domiciled against their capital gains.


Wide sweeping changes to the taxation of offshore trusts are included in the Finance Bill.  Details of these proposals can be found here.

Action required

  • Individuals who will be deemed domiciled as of 6 April 2017 and who have not paid the remittance basis charge should consider whether they should pay the remittance basis for 2016/17 or amend an earlier year in order to access rebasing
  • Consider their requirements for funds in the UK and whether there are any accounts where funds could be unmixed
  • For individuals who are not yet deemed domiciled consider whether a trust could be used to shield assets from income, capital gains and inheritance tax.

If you would like to discuss the issues raised here in more detail and how these affect you please contact your usual Frank Hirth adviser.



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Sarah Farrow

Sarah Farrow


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