Domicile is a common law concept which is distinct from an
individual's residence or nationality. Generally speaking, it
is the country where an individual intends to settle permanently.
The concept is not defined in statute for tax purposes and
depending on the circumstances, it can be a rather complex area
which is open to dispute by HM Revenue & Customs
Your domicile has tax implications but in the UK it also has an
impact on the law which governs succession to moveable assets. In
relation to inheritance tax (IHT), UK domiciled individuals are
subject to IHT on their worldwide property. Those who are non-UK
domiciled ("non-doms") are only liable to IHT on their
assets located in the UK.
In the 2015 Summer Budget, the government announced that it
would be introducing significant changes to the tax regime for
non-doms. HMRC published the latest results of its consultation on
the proposed changes on 19 August 2016. The government took this
opportunity to confirm that post EU referendum it still believes it
is appropriate to proceed with these reforms. Therefore, the whole
package of reforms to the non-dom regime will be legislated in the
Finance Bill 2017.
HMRC has just undertaken a further consultation which closed
this month and the government responses to this are yet to be
published. Therefore we do not have the final details of these
changes. It is apparent that non-doms will likely only have a short
window of opportunity to plan for these changes once the final
provisions are published.
IHT on UK residential Property
It is intended that, with effect from 6 April 2017, residential
properties in the UK held within an overseas structure, such as a
company or trust, shall be subject to IHT where the beneficial
owners of these structures are non-doms.
It has been common practice for non-doms to hold UK residential
property indirectly through an overseas company or similar vehicle.
This has historically offered IHT protection to non-doms as the
asset in their estate would not consist of UK residential property
but rather shares, in an offshore company, which did not constitute
UK assets for the purposes of IHT.
UK residential properties owned indirectly through these
offshore companies fall within the current definitions of
"excluded property" for IHT. However the government
proposes to remove such properties from these definitions in the
2017 Finance Act.
If you own UK residential property which is 'enveloped'
in an offshore structure then you may wish to consider
de-enveloping. However, the government has confirmed that it is not
minded to introduce reliefs for de-enveloping as a result of these
changes and so individuals should be prepared to pay some tax.
Therefore, advice should be sought as soon as possible in order to
plan the most tax efficient time and way in which to de-envelope UK
Deemed UK Domicile Status
From the tax year 2017/2018, the government intends to introduce
new rules which will treat non-doms as deemed UK domiciled for tax
purposes once they have been resident in the UK for 15 of the past
20 tax years. The effect of this is that once a non-dom becomes
deemed domiciled in the UK the scope of IHT will extend to their
worldwide property not just their UK assets. This reform brings
forward the onset of deemed-domicile status by a year. The present
rules provide that an individual acquires deemed domicile status at
the start of their 17th tax year of residence in the UK
but this will now be the start of the 16th tax year of
residence within the 20 year period.
The provisions for departing non-doms are broadly maintained so
that deemed-domicile status will fall away once an individual has
been non-resident for more than four consecutive years.
If you are non-domiciled then it is important to take advice at
least a year before the anticipated acquisition of a deemed
domicile in the UK. For example, it might be appropriate to move
assets into a trust and therefore it is important that you and your
advisors have sufficient opportunity to review your tax
The reforms will also restrict the availability of non-dom
status for UK-born individuals with a UK domicile of origin who
subsequently acquire a different domicile of choice. From April
2017 such individuals shall be deemed UK domiciled for IHT purposes
if they have been resident in the UK for at least one of the two
tax years prior to the relevant tax year. This may have a
significant IHT impact on any offshore trusts where such an
individual is the settlor.
Taxation of non-doms is a highly complex area and therefore if
you think you may be affected by the changes you should take advice
as soon as possible regarding your overall tax position in order to
ensure that you are able to carry out any appropriate tax planning
once the final details of these reforms are published.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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