On 5 December 2016 the Government published their responses to the further consultation on the reforms to the taxation of non-domiciles together, with draft provisions for the Finance Bill 2017 for consultation and explanatory notes. The response document makes it clear that these are "the final package of reforms" so whilst there will be changes to the legislation before the Bill is enacted in summer 2017 and indeed the Government have made it clear that there is further draft legislation to be issued, we can be confident that the overall scheme of the reforms is now settled and the changes will come into effect from April 2017.

There are three main elements to the reforms: i) changes to the tax treatment of long-term resident non-UK domiciled individuals and of individuals who were born in the UK and have a UK domicile of origin but had acquired a non-UK domicile of choice before returning to live in the UK ("returning deemed domiciles"); ii) changes to the inheritance tax treatment of residential property held indirectly by non-UK domiciles; and iii) a package of reforms to business investment relief designed to encourage inward investment into the UK out of otherwise taxable non-UK income and gains.

This note summarises the changes affecting long-term resident non-UK domiciled individuals and the returning deemed domiciles. It does not however address the treatment of trusts established by long-term residents which is dealt with in a separate note here.


At the moment individuals who are resident but non-UK domiciled are taxed on their UK source investment income and gains on an arising basis and can claim to be taxed on the remittance basis on their non-UK income and gains. This treatment continues for so long as they remain resident in the UK for tax purposes and non-UK domiciled under general law.

They are also liable to inheritance tax on their UK assets and not on their non-UK assets. However, for inheritance tax only they are deemed to be UK domiciled after they have been resident in the UK for 17 out of the last 20 tax years and, having become deemed domiciled or if they are actually domiciled, they remain deemed domiciled for three years after they have acquired a new domicile of choice under general law. If an individual is domiciled or deemed domiciled they are liable to inheritance tax on their worldwide assets.


The Government makes it clear in their response to the consultation that the overall aim of their policy, (to limit the length of time that the remittance basis is available to resident non-UK domiciled individuals and to prevent returning deemed domiciles from claiming the remittance basis at all) was settled and they did not directly consult on the policy during the consultation process. As a result from 6 April 2017 two categories of person will be treated as deemed domiciled for income and capital gains tax purposes:

  • Individuals who have been resident in the UK for at least 15 out of the prior 20 tax years (i.e. from the 16th year of residence). For inheritance tax this new regime simply shortens the current 17 out of 20 year rule.
  • Individuals who are returning deemed domiciles. The Government has however listened to the numerous representations made by professional bodies, businesses and individuals on the detail of how best to legislate these new proposals, and has provided some important reliefs and clarifications for long-term resident non-domiciles who will be caught by the new regime when it comes into effect on 6th April 2017.

An individual's liability to income and capital gains tax is primarily determined by residence, whilst liability to inheritance tax is primarily determined by domicile. The Government have made it clear that an individual who is currently non-UK resident but who has spent at least 15 out of the prior 20 tax years in the UK will not be caught by the changes whilst they are non-UK resident.

An individual who will become deemed domiciled from 6 April 2017 will not be subject to the new regime if they give up their residence before 6 April 2017. They may find it challenging to make the necessary adjustments to their lifestyle to avoid the statutory residence test from applying for the next tax year if they have made no plans to leave for another country or return home so late in the current tax year. However, if they are able to do so, the new rules will not apply to treat them as deemed domiciled for inheritance tax purposes during their period of non-residence.

In order to prevent the deemed domicile rules from applying on returning to the UK, an individual who has spent more than 15 out of the prior 20 tax years in the UK before leaving must not only retain their non-UK domicile as a matter of general law but have been non-UK resident for six complete tax years. However, for inheritance tax purposes, only an individual who was previously deemed domiciled will cease to be so from the start of their 4th tax year of non-residence, provided that they remain non-UK resident throughout their fourth year.


If an individual who is resident in the UK becomes deemed domiciled on or after 6 April 2017 then their worldwide personal assets are within the scope of charge to income tax and capital gains tax on an arising basis and to inheritance tax on lifetime gifts and on death.

This is a significant change to the taxation treatment of these individuals and the Government recognises this. Whilst some individuals will make plans to leave the UK, the Government has announced various measures to mitigate the full impact of these changes.

  • The Government has confirmed that a special set of rules will apply to trusts established by individuals who become deemed domiciled to mitigate the impact of various antiavoidance provisions that apply to trusts set up by UK domiciled individuals or to individuals who become UK domiciled under general law. These provisions will apply to any trusts established and funded by an individual before they become deemed domiciled (including trusts set up and funded before 6 April 2017, even if the individual has been in the UK for at least 15 out of the prior 20 tax years - although an individual who is under current legislation already deemed domiciled for inheritance tax purposes will be within the scope of inheritance tax in respect of any assets settled into trust even before April 2017).

Put briefly, even if the individual settlor (who is about to become deemed domiciled) is also a beneficiary of such a trust, the proposals envisage that non-UK income and gains on non-UK assets held in trust will not be treated as belonging to the settlor unless he or she (or certain family members) receive a distribution or other benefit from the trust anywhere in the world.

These special rules do not apply to returning deemed domiciles and any existing trusts established by them are subject to the anti-avoidance rules which apply to individual settlors who are UK domiciled under general law without any protection.

A more detailed review of the special regime for trusts established by individuals who become deemed domiciled is set out in a separate note here.

  • The Government has widened the scope of business investment relief facilitating inward investment by non-UK domiciles out of their untaxed non-UK income or gains without triggering a charge to tax on the remittance. 

A summary of the changes to business investment relief is set out in a separate note here.

  • The Government has widened the scope of a provision only available to individuals who become deemed domiciled on 6 April 2017. This provision enables them to rebase personal non-UK assets standing at a gain without triggering a capital gains tax liability. See below for further details.
  • The Government has widened the ability for any non-UK domiciles to reorganise any bank accounts they have such that capital can be segregated from untaxed non-UK income or gains, in order to enable tax-free remittances of capital to be made in the future. See below for further details.


The Government responded positively to some of the comments made during the consultation process by increasing the scope of non-UK assets that qualify for rebasing. However, it confirmed that rebasing is only available to individuals who become deemed domiciled on 6 April 2017 and provided that they have paid the remittance basis charge and not simply paid tax on the remittance basis. It also confirmed that rebasing is not available for assets held in trust, nor to assets where gains on a disposal are subject to income tax (the most common example of these are gains that arise on the disposal of interests in a non-UK fund which does not have reporting status). It is also clear that rebasing is not available to returning deemed domiciles.

The draft legislation provides that rebasing applies to disposals of qualifying assets. However it is possible to elect on an asset by asset basis that rebasing does not apply. Unless an election is made, rebasing will apply to all personally held non-UK assets owned on 5 April 2017 as long as the asset has not been a UK asset at any time since 16 March 2016 or, if later, the date the asset was acquired.

This means that on a disposal of a non-UK asset on or after 6 April by an individual who became deemed domiciled on 6 April 2017, recently acquired by way of gift or purchase out of non-UK funds or as a distribution from a trust, the gain will be computed by reference to its market value on 5 April 2017 and not to its value on its acquisition.

If an asset is standing at a loss at 5 April 2017, the individual will elect for rebasing not to apply. If the individual made a loss election whilst he / she was non-UK domiciled the legislation provides that the election falls away in the tax year the individual becomes deemed domiciled. Any losses generated on a subsequent disposal would therefore be available to set against future gains without restriction.

The rebasing proposals are potentially very generous.

Consider the position of an individual who is becoming deemed domiciled on 6 April 2017. They purchased a non-UK asset out of untaxed non-UK income many years ago when it was worth 100. It has since grown in value and by 5 April 2017 it is worth 300. By the time of its disposal in September 2017 it is worth 350. The individual sells it and arranges for the proceeds to be paid into an otherwise empty non-UK account. The individual remits 250 from the non-UK account to the UK and leaves the balance of 100 in his non-UK account.

The result is that only the gain of 50 that has arisen since 6 April 2017 is taxed on an arising basis to capital gains tax of 20 per cent and the individual has remitted to the UK the sum of 230 after tax (under the mixed fund rules the gain of 250 (of which 200 is not taxable) is treated as being remitted in priority to the original income invested of 100). If the individual had sold the asset on 5 April 2017 to prevent the profit from being caught in the new regime a remittance of 250 to the UK would have been wholly subject to tax.


The Government again responded positively to some of the comments made during the consultation process and extended the opportunity to cleanse mixed funds to two tax years expiring on 5 April 2019. However, they resisted suggestions to extend the rules to assets other than cash held in overseas bank accounts.

The opportunity is available to all non-UK domiciled individuals and not just to those who become deemed domiciled on 6 April 2017 and who have paid tax on the remittance basis without having necessarily paid the remittance basis charge. Once again it is not available to returning deemed domiciles.

This will provide a valuable opportunity for many non-UK domiciled individuals to "top-up" clean capital accounts to finance UK expenditure. The individual will need to analyse the sources of funds in the account such that an amount equal to or at least less than the clean capital can be identified. This could prove to be a time-consuming and potentially expensive process for accounts which have been in existence for some time and / or where there has been plenty of activity, particularly in terms of additions, acquisitions, disposals and withdrawals.

The legislation envisages a single transfer from a mixed account to a clean account and the transfer must be nominated as such by the individual. Once such a transfer has been made it should be possible to effect a further transfer of capital that comes to light out of the same pool of mixed funds by establishing a new capital account and thus making a further transfer out of the mixed account into the new capital account.


Back in August, bearing in mind everything that was going on post-Brexit and the perception that the new Government would not want to be seen to be dissuading internationally mobile and wealthy individuals from living in the UK, the decision to issue the consultation document took many by surprise. Seen in the context of the changes intending to be a tax revenue raising measure it is in reality no surprise that they decided to press on. However the impact has been mitigated by measures introduced by the new Chancellor particularly in terms of encouraging inward investment and there have been some positive changes introduced as a result of the consultation.

The legislation that has been issued is still in draft and is itself subject to consultation and there are gaps where drafting is awaited, but the main changes are clear and the interaction between them and the current regime is complex.

All resident non-UK domiciles are affected by the changes and some of those who are non-UK resident but making plans to return or even arrive are also affected. However, the changes impact most on long term non-UK domiciles who will become deemed domiciled on 6 April 2017 and they should be taking advice without delay.