Changes to Non-Domiciled Status Announced in The UK Summer Budget 2015


Following the United Kingdom’s General Election in May, George Osborne, Chancellor of the Exchequer, gave the new government’s first budget speech on 8 July 2015. In his speech, Mr Osborne announced some changes to the tax rules relating to non-domiciled status.

It is important to note that the measures have only been announced in outline and more details will be known in the autumn when detailed consultation papers will be published. The changes will not, however, take effect until April 2017, which gives individuals time to restructure their affairs as necessary.

In Depth

New 15 Year Rule

Individuals who have been resident for more than 15 of the last 20 years will be deemed to be domiciled in the United Kingdom for all tax purposes (income tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT)) and therefore subject to tax on an arising basis. It will no longer be possible for individuals to claim the remittance basis once they become deemed domiciled.

This rule will apply from 6 April 2017, regardless of when an individual arrived in the United Kingdom. The current rules will, however, continue to apply to individuals who leave the United Kingdom before 6 April 2017 and would otherwise be UK domiciled under the new 15 year rule.

Individuals who have established excluded property trusts (offshore trusts outside the current IHT regime) prior to the application of the 15 year rule will not be subject to tax on income and gains that are retained in these trusts. The trusts will also keep the same beneficial IHT treatment as at present, subject to the new rules relating to UK residential property. For those individuals who will be subject to the 15 year rule from 6 April 2017, but are currently neither UK domiciled nor deemed domiciled in the United Kingdom, it is worth considering establishing trust structures before 6 April 2017 to mitigate IHT in respect of UK-situated assets other than UK residential property.

Individuals who are domiciled under the 15 year rule from 6 April 2017 will be taxed on any benefits, capital or income received from excluded property trusts on a worldwide basis. We await further detail on these provisions; the government will consult on the necessary changes to the transfer of assets regime and CGT trust provisions.

Individuals affected by the 15 year rule will only be able to lose their deemed UK domicile after they spend more than five tax years outside the United Kingdom. After this period of non-residence, it would be possible for non-UK domiciled individuals to return to the United Kingdom and restart the clock for claiming the remittance basis (for up to 15 years), provided they remain foreign domiciled under general law.

Returning UK Domicile Rule

Individuals with a UK domicile of origin will be deemed to be UK domiciled whenever they reside in the United Kingdom. This rule prevents individuals with a UK domicile of origin, who lose their domicile during a period of non-UK residence, from continuing to claim non-UK domicile status on any subsequent return to the United Kingdom. This rule will apply from 6 April 2017, regardless of when an individual returned to the United Kingdom.

Individuals subject to this rule will not benefit from any favourable tax treatment in respect of trusts created whilst they were non-UK domiciled. Individuals in this situation may want to consider restructuring assets held in offshore trusts or migrating such trusts onshore to the United Kingdom.

An individual subject to this rule can lose their deemed domicile again in the tax year after their departure from the United Kingdom if they fall outside the 15 year rule and have not had an actual UK domicile within the last three years. Otherwise, such an individual will need to spend more than five tax years abroad in order to be able to once again lose his or her deemed UK domicile.

Remittance Basis Charge

The £90,000 remittance basis charge (RBC) for individuals who have been resident in the United Kingdom for 17 of the last 20 years will become redundant from 6 April 2017 as a consequence of the new 15 year rule.

The £30,000 RBC for individuals who have been resident in the United Kingdom for at least seven of the last nine tax years, and the £60,000 RBC for individuals who have been resident in the United Kingdom for at least 12 of the last 14 tax years, will remain unchanged.

The government will not introduce a minimum claim period for the RBC, meaning individuals can continue to opt in or out of the remittance basis on a year by year basis.

New IHT Charge on UK Residential Property Owned Indirectly by Non-Domiciliaries

From 6 April 2017, the IHT charge will apply to property owned by closely controlled offshore companies and partnerships, and will be based on the Annual Tax on Enveloped Dwellings (ATED) rules. Unlike ATED, however, the charge will apply to all UK residential property regardless of value, and regardless of whether the property is occupied or let.

The same IHT reliefs and charges will apply as if the property was held directly by the owner of the company. This means there will be an IHT charge on the death of an individual who owns shares in an offshore company that in turn owns UK residential property. There would also be charges on the the gift of such shares to an offshore trust and the distribution of such shares out of the trust. The reservation of benefit rules will also apply where the donor or settlor benefits from the UK property within the seven years prior to his death.

It is important to note that the new IHT rules will apply equally to UK residents and non-UK residents. Excluded property trusts owning UK residential property will be brought into an updated relevant property regime, but not in respect of assets other than UK residential property.

It is clear that in respect of structures owning UK residential property, direct ownership is going to be the most attractive option for many individuals in order to fall outside the annual ATED charge, the charge on ATED-related CGT and the new IHT charge, which will be in force from 6 April 2017. Taking the property out of an existing structure (or “de-enveloping”) is likely in some cases to trigger significant costs, and the government is has indicated it will consider this during the course of the consultation.


A number of tax charges may be triggered on de-enveloping, so obtaining advice on how to best unwind a structure is essential. Individuals with historic structures are likely to want to wait until the outcome of the government’s consultation before deciding how best to proceed. Individuals who have enveloped UK residential property very recently may want to consider restructuring now, whilst it may be possible to liquidate their property holding company without triggering UK tax.

For individuals who de-envelope now to hold UK residential property directly, however, there is the risk they might die between de-enveloping and the new charges applying. This would result in the property being subject to a 40 per cent IHT charge, which they could have avoided by waiting until April 2017 before de-enveloping.

It is clear that each client’s individual circumstances will need to be considered before de-enveloping, and we believe that insurance will play a more prominent role in IHT planning.


As the regulations relating to the Disclosure of Tax Avoidance Schemes have been extended to IHT, schemes that attempt to avoid the new changes are likely to be caught. The government has announced that there will be targeted anti-avoidance legislation against “ways in which foreign domiciled individuals and trusts may seek to avoid IHT by manipulation of the rules involving excluded property.”