HMRC have published a consultation document with more detail as to the changes ahead for non-domiciled individuals and inviting views as to how these could best be implemented.  Consultation closes on 11 November 2015.

The basic proposals outlined in the 2015 Summer Budget have not changed; see Summer Budget 2015 Non-domiciled taxpayers for our summary.

The consultancy document includes the following additional proposals:

Deemed domicile

It was announced in the budget that from 2017/18, any non-dom who has been resident for more than 15 of the past 20 tax years will become deemed domiciled for all UK taxes.

  • Once deemed domicile they will be unable to claim the remittance basis from their 16th year of residence and they also become subject to income tax, CGT and IHT on their worldwide income and assets.
  • The proposed changes mean that the long term £90,000 remitance basis charge will no longer apply as under the new rules an individual will be deemed domiciled by that time and unable to use the remittance basis charge.

 For the purposes of establishing deemed domicile:

  • All years of UK residence will be counted, including those during which the individual is under 18
  • Years where an individual becomes or ceases to be UK resident will also be counted (split years)
  • Children will not acquire a deemed domicile from their parents
  • The IHT domicile rules will be changed so that individuals become deemed-UK domiciled for IHT purposes in their 16th year of residence

It is intended that an individual will become deemed-domiciled for the purposes of income tax, capital gains tax and inheritance tax at the same time.

De-minimus rule

At the moment, individuals with unremitted foreign income of £2,000 or less are entitled to use the remittance basis without losing any entitlement to UK personal allowances regardless of how long the individual has been UK resident.

HMRC are considering abolishing this de-minimus amount, citing the fact that from April 2016, all taxpayers will be able to receive up to £28,000 of income/gains without paying any UK tax when the allowances for interest and dividend income are combined with the capital gains tax annual exemption and the personal allowance.

However, non-domiciled individuals in receipt of unremitted foreign rental income of less than £2,000 could now have to pay UK tax on this income or lose their personal allowances.

Offshore Trust

HMRC intends to ensure that any individual who becomes deemed-UK domiciled will not pay any UK tax on offshore trusts that they have settled before they became deemed UK-domiciled whilst neither they nor their spouse or children receive any benefit from the trust.

Offshore trusts that are set up by an individual who is not domiciled in the UK will remain outside the scope of UK IHT even after that individual becomes deemed-UK domiciled. 

The treatment will be different for anyone who has a UK domicile of origin. If they leave the UK to acquire a domicile of choice abroad and then also establish offshore trusts, those trusts will lose any favourable status and will then subject to the UK rules including the ten year and exit charges.  

Other implications for Inheritance Tax (IHT)

Leaving and returning to the UK:

  • An individual who acquires a deemed-UK domicile they will continue to be deemed-UK domiciled for six years after their departure. On return to the UK their "clock' starts again, so that they may stay in the UK for a further 15 years without becoming UK domiciled
  • An individual with a UK domicile of origin may leave the UK and acquire a domicile of choice abroad. However, even if they stay away from the UK, hey will automatically become UK domiciled again the moment that if they return to the UK and become UK resident.

Currently individuals with a UK domicile of origin cease to be UK domiciled after only three years. To counter this, HMRC is considering changing the rules so that a UK domiciled individual will only cease to be UK domiciled after the leaving the UK after they have been non-resident for six years OR acquired an overseas domicile of choice, whichever is the later.

 Potentially exempt transfers: if an individual who is not domiciled in the UK makes a potentially exempt transfer of an excluded property asset before they become deemed-UK domiciled the transfer will not be included in the death estate even if they die within seven years of making the transfer.

Individuals born in the UK: In the summer budget it was announced that individuals who were born in the UK with a UK domicile of origin would be treated as UK domiciled while they were resident in the UK even if they have acquired a domicile of choice overseas.  

HMRC are asking for views as to whether there should be a short period of grace, for example two years, where a non domiciled individual can become temporarily UK resident without it impacting on their domicile status.

This consultation runs until 11 November 2015, see HMRC consultancy document

Our guide: Summer Budget 2015 proposals