As announced in the Summer Budget 2015, the UK Government is changing the way in which long-term UK resident foreign domiciled individuals are taxed with the main aim being to prevent UK resident individuals from benefitting from foreign domiciled status indefinitely.
Currently, foreign domiciled individuals can claim the preferential remittance basis tax regime indefinitely although they will become ‘deemed’ UK domiciled for inheritance tax purposes once they have been UK resident for 17 of the past 20 years (with the effect that their worldwide estate will be subject to inheritance tax).
From 6 April 2017, the concept of ‘deemed domicile’ is being extended to all UK taxes, including income tax and capital gains tax. This means that once an individual has been resident in the UK for 15 out of 20 years, they will be taxed in the same way as a UK domiciled person, i.e. with their worldwide income, gains and estate subject to UK tax, and will no longer be able to benefit from the remittance basis regime. The changes also affect the taxation of offshore trusts with a deemed domiciled settlor or beneficiaries although there are protections for trusts established before the settlor becomes deemed domiciled on or after 6 April 2017.
In light of the changes, UK resident individuals should review their residence position to determine when they will become deemed domiciled and trust administrators should review their trusts in order to ensure that they will still be able to meet their intended purpose or whether they should be restructured. Individuals becoming deemed domiciled should also take advice on their personal affairs to ascertain the extent to which they can mitigate their exposure to UK tax in the future.