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Planning for Deemed Domicile in the UK

Private Clients - 18 Feb 2016

As you may be aware, the taxation of long term UK resident non-domiciled individuals changes significantly in April 2017.  Although all the details have not yet been released by HMRC, the changes will mean that any non-domiciled individuals that have been UK resident for 15 out of the previous 20 tax years will become deemed UK domiciled for all taxes from April 2017.

Under the existing rules, long term UK resident non-domiciled taxpayers become deemed domiciled for UK Inheritance Tax (IHT) only; if they have been UK resident for 17 of the last 20 tax years, including the current tax year.

UK domiciled or deemed domiciled individuals may be subject to IHT on their worldwide assets, whereas non-UK domiciled individuals are only subject to IHT on assets situated in the UK.  This could mean a significant increase in global IHT liability will arise once you reach your seventeenth tax year of residency if prior to April 2017 or even sooner after this date.

UK domiciled or deemed domiciled individuals may be subject to IHT on their worldwide assets, whereas non-UK domiciled individuals are only subject to IHT on assets situated in the UK.  This could mean a significant increase in global IHT liability will arise once you reach your seventeenth tax year of residency if prior to April 2017 or even sooner after this date.

Tax Planning Opportunities 

There are many tax planning steps which can be taken prior to becoming deemed domiciled in order to minimise the IHT implications of reaching this milestone, even if the income and capital gains tax benefits may be lost under the forthcoming changes.  These can include effective use of appropriate offshore structures, insurance policies and lifetime gifting depending on your exact circumstances.

If you own significant value assets abroad and would like to take steps to protect them from a potential 40% UK IHT charge, please contact our Private Client UK Tax Team:

Robyn Limmer                      Justin Cobb

Head of Tax Private             Client Senior Manager

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Robyn Limmer

Robyn Limmer

Managing Director

T: +44 (0) 20 7833 3500
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Office: London