Long-awaited details of proposed changes to the taxation of UK resident non-domiciliaries (RNDs) have been delivered as part of a further consultation document, which was published on 19 August. While some believed that the result of the referendum on membership of the European Union and preparations for Brexit would derail or delay implementation of the reforms, which were first announced at Summer Budget 2015, the consultation document confirms that the changes are planned to go ahead on 6 April 2017: “Post EU referendum, the aspiration for a tax system that balances fairness and international competitiveness remains the same, and the government believes it is still appropriate to proceed with these reforms.” The consultation also invites comments on possible reforms to business investment relief to encourage greater inward investment in the UK.

The consultation period closes in nine weeks, on 20 October 2016. RNDs now have 226 days within which to plan for the new non-dom landscape.

A UK-compliant life policy issued from Lombard International Assurance S.A. continues to offer a series of benefits for a UK taxpayer including the accumulation of income and gains on linked investments without the burden of tax (other than any non-reclaimable tax withheld at source), and continued tax deferral beyond April 2017 when deemed-domiciled individuals will be taxed on the arising basis in respect of directly held assets.

Lombard International Assurance will publish further commentary as additional detail on the changes emerges.

What are the proposed changes?

As reported in a previous Insight, the proposed changes would bring to an end permanent non-domiciled status for tax purposes, rendering those who have been resident in the UK for 15 of 20 tax years deemed-domiciled for income, capital gains and inheritance tax (15/20 Year Rule). Also set to be introduced are significant amendments to the taxation of offshore trusts for RNDs and an expansion of the inheritance tax regime to capture UK residential property held by RNDs via offshore structures.

The 15/20 year rule

Long-term UK resident non-domiciled individuals would be treated as UK domiciled for tax purposes once they have spent more than 15 of 20 tax years in the UK. The result is that from the beginning of their sixteenth year in the UK they will be taxed on an arising basis in respect of income and gains and their worldwide estates will be within the scope of inheritance tax. The remittance basis of tax will be unavailable.

The consultation document has confirmed a number of key proposals in this respect:

  • The 15/20 Year Rule will apply from 6 April 2017. For example, RNDs resident in the UK since tax year 2002/03 would be deemed-domiciled under the new rules from 6 April.
  • Split years would count towards the 15, as had previously been suggested.
  • Similarly, years before age 18 would also count.
  • In order to determine an individual’s UK residence position for a particular year, the residency test in force in that year must be used (the statutory residence test applies for tax years from 2013/14 only).

Certain protections are due to be implemented, for example for individuals who generated disposals of foreign assets prior to the announcement of the changes, given that they may otherwise be disadvantaged on a return to the UK under the temporary non-residence rules (the rules would have triggered tax that could not be avoided by using the remittance basis).

Additionally, transfers for inheritance tax purposes which are made by individuals while non-domiciled but who die after having acquired deemed-domicile would not be taxed. However, there would be no protection for those who left the UK and returned under the current 17/20 year rule for inheritance tax purposes.


Budget 2016 announced an option for RNDs becoming deemed domiciled at 6 April 2017 to rebase foreign assets for CGT purposes, although no further detail was given at the time. The consultation confirms as follows:

  • Rebasing would apply on an asset-by-asset basis to assets that were foreign situs as at Summer Budget 2015, and would use market value as at 5 April 2017.
  • As a result, only gains accruing after 5 April 2017 will be taxable.
  • Proceeds relating to pre-rebasing gains can be remitted. However, there is unlikely to be any effect on previously untaxed foreign income and gains. In other words, if the relevant asset was acquired with such untaxed sums then the remittance of disposal proceeds deriving from those sums will likely be taxable.
  • Rebasing will not be available to Returning Doms (RNDs who were born in the UK with UK domicile of origin) or those who become deemed domiciled in subsequent years.


A great many RNDs have, perhaps inadvertently, created mixed funds abroad. The consultation document recognises that arising basis taxation from 6 April 2017 coupled with the difficulty of remitting from mixed funds generated prior to that date could create substantial complexity for deemed-domiciled RNDs.

There will therefore be a short window, of one tax year from 6 April 2017, during which RNDs (not only those who will be deemed domiciled from 6 April) can separate out mixed funds. There will be no requirement to remit ‘cleansed’ assets and taxpayers need not be resident in April 2017 to benefit. Note, however, that cleansing will not be available where the sources of income and gains within a mixed fund cannot be ascertained. Cleansing will also be unavailable to Returning Doms.

Offshore trusts

The October 2015 proposal to introduce a benefits charge for offshore trusts of deemed-domiciled individuals has been the subject of widespread criticism in the interim. Of particular concern was the potential for taxation in circumstances where the trust had made no gains and generated no income. The government has therefore abandoned the benefits charge in favour of the expansion of existing anti-avoidance regimes so that, broadly, deemed-domiciled individuals would be taxed in the same way as resident domiciled individuals, without the benefit of the remittance basis, unless the trust in question was established prior to acquisition of deemed-domicile status. If actual benefits are received by the settlor or other relevant individuals then such benefits could be taxed, in a similar manner as they are today. However, a trust’s protected status can be lost for future tax years and the proposal is that additions to protected trusts will taint them in respect of all future tax years.

The government plans to introduce the rules relating to offshore trusts of Returning Doms as previously set out.

Inheritance tax and residential property

The first details of legislation designed to bring indirectly held UK residential property within the charge to inheritance tax for RNDs have also been provided as part of the consultation.

UK residential properties held indirectly through offshore structures are proposed to be removed from the current definitions of excluded property regardless of whether the overseas structure is owned by an individual or a trust. Similar treatment would apply to property held via partnerships. The change is due to apply to all chargeable events taking place after 5 April 2017 and it is the government’s preference to apply the new regime to all properties qualifying as ‘dwellings’ for the purposes of non-resident capital gains tax and to expand this definition further. The consultation includes additional commentary on valuation methods, mixed use properties and debts, and a new targeted anti-avoidance rule will disregard any arrangements where their whole or main purpose is to avoid or mitigate a charge to inheritance tax on UK residential property. There is also a suggestion that, under new powers granted to HMRC, properties will not be available for sale until any outstanding inheritance tax has been paid.

Given the multitude of recent changes affecting UK residential property, there was hope that transitional provisions would be introduced to offer relief to individuals who choose to de-envelope their properties. The government currently has no plans to offer such relief.

As highlighted in our October newsletter, the 15/20 Year Rule would have left deemed-domiciles open to an inheritance tax charge on worldwide assets for up to 6 years following departure from the UK. The consultation announces a change in this regard so that, for inheritance tax purposes, only four consecutive years of non-residence will be required before worldwide inheritance tax exposure is lost.

What to do?

RNDs will need to quickly consider their options for pre and post-April 2017 planning, which is likely to involve an assessment of the following:

  • Confirmation of their domicile status under general law and the existing deeming rules.
  • How much time is spent in the UK and abroad in light of the 15/20 Rule and the impact of UK residence for Returning Doms. 
  • The prospect of moving to the arising basis of taxation after 2017 and the use of alternative vehicles, such as UK compliant life policies, which can offer deferral of taxation in the long term.
  • Reducing or otherwise planning for untaxed foreign income and gains beyond acquisition of UK deemed-domicile under the 15/20 Rule.
  • The impact of inheritance tax from the beginning of the 16th year in the UK rather than the 17th, and the 4-year inheritance tax tail.
  • A review or restructuring of existing trust arrangements given the proposed changes to anti-avoidance rules affecting offshore trusts and, for Returning Doms, the loss of excluded property status.
  • An assessment of existing residential property holding structures and their future efficiency.

By Simon Gorbutt 

If you have any questions or require further information, please don't hesitate to contact Chris Edward or your usual Lombard International Assurance representative.

This document is based on Lombard International Assurance’s understanding of the current proposals, which might not ultimately be enacted in precisely the suggested form or to the suggested timescale.