Non-doms: time is running out

06 January 2017

The government has released further details, including draft legislation, on the changes to the taxation of non-doms and has confirmed that these will go ahead from April 2017, despite the new draft rules being incomplete, and with less than four months left until their effective date. 

The latest news

Mixed fund accounts

The window of opportunity for ‘cleansing’ mixed fund accounts to separate out clean capital, income and gains has now been extended to cover two years from 6 April 2017 (it was initially offered for just one year). 

It will be available to certain non-doms provided specified conditions are met, but will still only apply to personal bank and similar money accounts (not other assets or investments, and not accounts held by companies or trusts).


Rebasing of assets to their 6 April 2017 values will be available to long term resident non-doms, subject to conditions being met by the non-doms themselves and the assets they hold.  

As the rebasing will not apply to all assets, or to all non-doms, advice should be sought to consider the options. 

Those with a UK domicile of origin

No hope remains for protecting the non-dom tax status of those born in the UK with a UK domicile of origin who come back to the UK. They will not be extended any further protections, nor will they be able to benefit from either of the transitional provisions described above. Any trusts they have set up whilst non-domiciled under common law will also be impacted.  

Overseas trustees

Significant changes have been made since the August 2016 consultation on how trust distributions and benefits will be taxed. 

UK residential property

UK residential property held in structures currently shielding it from UK inheritance tax (IHT) will be brought into IHT net. Further clarification of some of the more complex issues (valuations and loans) and how the new rules will work in practice has been provided by the government but more detail is still awaited.  

Many will consider removing the property from such ownership structures - it has, however, been unequivocally confirmed that no ‘de-enveloping’ relief will be available. If property is to be extracted from such structures, in most cases it will be essential to do this prior to 6 April 2017. There are multiple tax, legal and financing considerations which will likely take months to resolve, so the process should ideally be started as soon as possible. 

Business investment relief (BIR)

Having recognised the restrictive nature of the current scheme, the government is putting forward changes to encourage non-doms to invest in UK businesses, some of the key changes being:

  • the ‘extraction of benefit’ rule will only be breached if benefits received are attributable to the investment;
  • the time limit for the company to commence trading following an investment will increase from two years to five years;
  • acquisitions of existing shares will also qualify for BIR; and
  • the grace period to take steps to mitigate taxable remittances, where a breach of conditions has occurred, will be increased to two years. 

Next steps

Taking no action will most likely result in escalated tax and non-tax costs and all non-doms should seek advice on how to mitigate the effects of the new rules now.  

Those non-doms who, at 6 April 2017, will have been resident in the UK for at least 15 out of the last 20 tax years urgently need to review their worldwide assets held personally and in structures, and assess their current and future financial requirements in the UK. They need to consider re-arranging asset ownership, possibly utilising a trust to take advantage of the ‘protected settlements’ rules to ensure that income and gains arising in overseas structures are only taxed in the UK if paid to them. A decision on whether to bring forward income or gains into the current tax year to benefit from the remittance basis will also need to be made.

Reviewing arrangements, agreeing the right structures and implementing any decisions will likely take some time and so clients should, if they have not already done so, start taking action to avoid missing out on planning opportunities. 

Those non-doms considering leaving the UK should also seek advice to ensure a smooth and tax efficient (Br)exit

For more information, please get in touch with Elizabeth Goshtai or Kristina Volodeva.