It is somewhat ironic that whilst the Channel Islands have been
put under significant pressure over the last 15 years or so
(particularly from the EU) over our favourable tax regime for
non-residents of the Islands, one of its own current member states,
namely the UK, continues to protect its favourable regime for
"non-doms", i.e. persons who are residents of the UK but
are not domiciled there.
For income tax and capital gains tax purposes, foreign
domiciliaries (ie non-doms) who are eligible to be taxed under what
is known as the remittance basis, are liable to UK tax on their
income and gains arising in the UK, but are only taxed on their
overseas income and gains to the extent that they are brought into
or enjoyed in the UK.
The position is slightly different in relation to inheritance
tax. Non-Doms pay inheritance tax only in respect of assets
situated in the UK. This allows individuals to secure an
inheritance tax advantage by holding UK property through an
So much for the current rules. In George Osborne's first
budget after the last election (delivered on 8 July 2015), he
announced significant reforms to the current tax regime which are
scheduled to come into effect from 6 April 2017, fall into three
Restrictions on the availability of
non-domiciled status for tax purposes for foreign domiciliaries who
have been UK tax resident for more than 15 out of the last 20 years
(labelled as "long term residents");
Restrictions on the availability of
non-domiciled status for those who have a UK domicile of origin but
leave the UK and acquire a domicile of choice elsewhere but then
return to the UK (labelled "returning UK domiciliaries");
The extension of UK inheritance tax
to apply to all UK residential property, however held.
The UK Government has also indicated that foreign domiciliaries
who set up a non-UK resident trust before they become deemed UK
domiciled for tax purposes will not be taxed on trust income and
gains that are retained in the trust, and the assets will remain
outside the scope of inheritance tax.
It is the expertise within the Channel Islands in respect of the
establishment and administration of non-UK resident trusts and
companies which has resulted in the Islands becoming home to a
significant chunk of the non-dom market. The fact that there will
continue to be advantages for non-doms in using offshore structures
is a relief for those of us in the private client arena.
However, might we dare for more? Might these changes, if
introduced, bring about an increase of non-dom business to the
Islands? Personally, I could see the changes meaning more work for
private client practitioners. In the short term, it is apparent
from the London intermediary market that they are already advising
their clients to, firstly, review their existing structures, and
secondly, (depending on the client's circumstances), to
consider re-structuring in some way so as to mitigate any
undesirable tax consequences. This will inevitably lead to work for
lawyers, accountants, bankers and investment managers in the
Also in the longer term, by re-framing the rules so as to allow
high net worth entrants to the UK to live there for 15 years before
becoming UK domiciled, I believe the UK will be introducing some
welcome certainty to the regime, which could lead to an influx of
new arrivals, who will be advised to consider setting up offshore
structures. The London intermediary market, in my experience, looks
to the Channel Islands before anywhere else when placing their new
All in all, I am optimistic for our future!
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