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Proposed changes to UK domicile rules
Where an individual is resident but not domiciled in the UK there are special rules that apply to that person's overseas income and capital gains. Plus only their UK assets are charged to inheritance tax. The government has been consulting this summer on possible changes to the rules from 6 April 2017.
Currently the UK domicile rules provide that where an individual’s father is non-domiciled then his children automatically take on the father’s domicile (domicile of origin). However, it is proposed that from 6 April 2017, an individual is deemed domiciled for income tax and capital gains tax if he meets either of two conditions:
• was born in the UK and has a UK domicile of origin. The individual must also be UK resident in the tax year under consideration.
• must have been UK resident for tax in at least 15 out of the 20 years preceding the tax year under consideration.
The 15/20 year rule will also replace the current 17/20 year rule that currently applies for inheritance tax so that there is a common definition for all three taxes.
Inheritance tax implications of new domicile rules
Individuals who are domiciled in the UK are subject to inheritance tax (IHT) on their worldwide assets wherever situated. Non-UK domiciled individuals are currently only subject to IHT on their UK assets.
Classic planning for non-doms was to hold UK assets, particularly UK houses, through an offshore trust or company. The consultation on proposed changes suggests that such a structure will be ineffective in future with the underlying UK house being chargeable to IHT.
These changes are extremely complex so please contact us if they are likely to affect you.