Insights 05.5.21 Author: Michaela Lamb

Reforms to the Taxation of Non-Doms: How have the Changes Introduced in 2017 Affected Non-Doms Living in the UK Today?

Insights 05.05.2021 Author: Michaela Lamb

In 2017, significant changes were made to the UK tax system in respect of how non-domiciled individuals were to be taxed.

Four years on from the some of the biggest changes the UK tax system has undergone, we reflect on how those changes have affected “non-doms” living in the UK.

At the time, five major changes were made:

  1. The introduction of Deemed UK Domicile status  for long term UK residents
  2. Additional tax obligations for Formerly Domiciled Residents
  3. The introduction of Protected Trusts
  4. Extending the reach of Inheritance tax on UK residential property
  5. An update on Business Investment Relief (BIR)

1. Deemed UK domicile for long term UK residents

Individuals who have been tax resident in the UK for at least 15 of the previous 20 tax years are treated as deemed domiciled from the start of their 16th year. This change affects capital gains tax (CGT), income tax and inheritance tax (IHT) and anyone who is deemed domiciled is effectively taxed in the same way that someone who is domiciled is – i.e. taxable on their worldwide income and gains with no option to use the remittance basis, and their worldwide estates are subject to IHT on death, subject to any double tax agreements.

At the time, the changes made were felt by some to be draconian, but for those who wanted to remain in the UK, there were in fact a number of transitional measures introduced which allowed some form of tax planning to make the changes a little more palatable.

For example, individuals who became deemed domiciled on (but not after) 6 April 2017 were able to rebase directly held foreign assets to their market value as of 6 April 2017 –  though only for those assets held abroad (i.e. had foreign situs for legal purposes) throughout the period from 16 March 2016. This rebasing only applied if the individual had claimed the remittance basis for a tax year before 2017/18.  However, rebasing was not available to anyone who regained their domicile on 6 April 2017 because they were born in the UK with a UK domicile of origin.

For those who met the conditions and could benefit from this measure, this provided a significant opportunity: overseas assets that were being sold could be rebased and the proceeds remitted, potentially providing a significantly lower UK tax bill than would have been paid under the remittance basis.

In addition, those who had used the remittance basis were given a window to re-organise their offshore funds between 6 April 2017 and 5 April 2019 to separate out pure capital from unremitted income and gains, so as to un-trap their pure capital and enable them to remit it tax free to the UK – potentially providing a significant tax saving for those prepared to go through the (sometimes expensive) exercise of cleansing their funds.

Following the changes, for IHT purpose, individuals who now become non-resident will only have to remain so for four consecutive tax years to lose their UK deemed domiciled status.  However, for income tax and CGT, it is longer, requiring a minimum of six years to escape the anti-avoidance measures.

2. Formerly Domiciled Residents

Historically, those who were able to lose their UK domiciled status would not necessarily regain it by returning to the UK for a short period of time, and during that period of residency, may still have availed themselves of the remittance basis.  Since 2017, for those who were born in the UK, the situation changed drastically, and UK domiciled status was immediately (although potentially temporarily) reinstated for income tax and CGT purposes from the date of arriving in the UK. For IHT purposes, a period of grace was granted so that UK domiciled status only revives at the start of the second tax year of residency.

Those born in the UK have therefore been more significantly impacted by the 2017 changes than those who were not born on these shores. But, they may once again lose their UK domicile for a tax year that they are not UK resident, so all is not lost.

3. Protected Trusts

The major planning opportunity introduced by the 2017 changes was the concept of the Protected Trust – an offshore trust settled with offshore assets at a time before the settlor became UK deemed domiciled.

The assets held within these structures are protected from the UK tax net and the protection is only lost where assets are added to the trust,  in which case the settlor will be charged to UK tax on the arising basis on income and gains arising within the trust.  Even with protection, tax will still be due when the individual (or a close family member, whether they live in the UK or not) receives a payment or benefit from the trust, but otherwise, while the income and assets remain within the structure, they are shielded from UK tax, even where it is a settlor interested trust.

Foreign income received prior to April 2017 and retained in the trust will become protected for matching only to benefits received after April 2017. However, no tax charge will arise when this income is distributed if previously taxed under settlor taxing provisions.

Helpfully, these changes have meant that many who once had to pay the remittance basis fee no longer need to if the income arises within this protected structure rather than in their own hands.

For IHT purposes, the protection for assets within the trust continues, even if the settlor becomes UK deemed domiciled at a later date.

4. IHT on UK residential property

The 2017 changes followed a number of other attacks on the UK property sector that have been introduced in the years up to then and since. From 2017 non-UK tax resident structures holding UK residential property were brought into the scope of UK IHT, irrespective of the structure the property was held through, be that an offshore company, offshore trust or a combination of the two. The only exception was for those structures holding a less than 1% share in the property in question. In short, there is no longer any way for those holding UK residential property to escape UK IHT when they die. Furthermore, the proceeds from the disposal of a UK residential property will remain outside the definition of “excluded property” for two years, and so will be caught for IHT purposes should the individual die within that time frame following the sale of a UK property. Debts to acquire, or assets used as collateral to acquire UK residential property will also be taken outside the definition of excluded property so will be within the charge to UK IHT for the lender.

In addition to IHT on death, the above has also had the effect of meaning that offshore trusts which could take advantage of owning excluded property and avoiding periodic (10-year) charges and exit charges, now need to take these into consideration and, make the relevant declarations and payment of taxes.

In effect, these changes hailed the removal of what many saw as the last remaining (tax) reason to hold a UK residential property through any sort of offshore structure – if the introduction of the Annual Tax on Enveloped Dwellings (ATED) has not been a big enough incentive for those owning through a company to de-envelope already. Sadly, there has been no soft landing, and those who have wanted to de-envelope have, in many cases, been subject to high CGT charges in trying to unwind the now useless structures.

However, there are still practical, non-tax reasons for holding UK residential property in trust – the main reasons all being asset protection based. And even from a tax perspective, many still find the 6% 10-yearly charge less painful than the spectre of a 40% IHT liability on death. So, it is unlikely that we have seen the end of the trust just yet, although the tax changes may give those intending to settle assets into trust the incentive to do that in the UK, rather than offshore, in a bid to reduce the high administrative cost that using an offshore structure usually brings with it.

5. Business Investment Relief (BIR)

In order to soften the blow and to show that the UK still welcomed non-doms (or their money, at least!), at the same time the above changes were being made, the Government also introduced BIR – a relief only available to UK resident non-domiciled individuals. BIR allows those who qualify to remit funds to the UK without suffering UK tax, as long as those funds are invested into a qualifying business – which helpfully includes property businesses.

There are still restrictions, and this cannot be seen as a back door to get money into the UK for other purposes without paying the remittance basis – once the funds are no longer held within the qualifying investment, there is only a short period of time to get them out again before these are treated as a remittance, and of course any income or gains that are generated are still subject to UK taxes in the same way.


Since 2017 the UK tax system has continued to evolve and, of course, further changes have been introduced over that time, but none quite so specifically aimed at non-doms. Instead, non-residents have suffered the brunt of these with changes in April 2018 in the taxation of commercially and indirectly owned property being brought in, to the extension of the Trust Registration Service (TRS) which will see some offshore trusts brought into the scheme from March 2022.  Only time will tell as to what the UK Government has in store for non-doms in future, as policy makers tread the narrow path between bringing in more tax revenue to the UK, whilst trying not to scare off the overseas investors and talent that the UK still desperately needs to attract.

If you have any questions regarding this article, please contact Michaela Lamb or a member of the tax team.