UK Tax Residence - Planning Opportunities, Case Studies And How To Get it Right

Major reforms regarding how UK tax resident, non-UK domiciliaries ("non-doms") are to be taxed will be implemented from April 2017.

The changes will impact on individuals who have been tax resident in the UK for 15 years or more.

The Attractive Remittance Basis of Taxation will Continue for Many Non-UK Domiciliaries

The availability of the remittance basis of taxation for non-UK domiciled individuals who have been resident in the UK for fewer than 15 years will continue. The availability of the remittance basis allows for some interesting tax planning opportunities.

The New "15 year" Rule and Implications Regarding Income Tax and Capital Gains Tax

The current position for UK tax resident, non-domiciled individuals is that they can elect to pay UK income and capital gains tax on foreign source income and gains only to the extent that those monies are remitted to the UK. If the monies are not remitted to the UK, no UK income or capital gains tax is payable.

Since 2008, individuals resident for 7 years or more have had to pay an annual charge for the use of the remittance basis. As long as the annual charge has been paid, the remittance basis has remained available.

It is now proposed that, from April 2017, anyone who has been tax resident in the UK for 15 of the previous 20 tax years will become "deemed domiciled" for tax purposes. This will mean that these non-dom individuals will no longer have the option to use the remittance basis of taxation and will be taxed on a worldwide basis. For income and capital gains tax purposes it is therefore important to consider planning opportunities prior to April 2017.

Deemed Domiciled - the Concept and Inheritance Tax

For inheritance tax purposes, a similar "deemed domiciled" rule already exists. The current rule is that an individual becomes deemed domiciled for inheritance tax once tax resident in the UK for 17 of the previous 20 tax years.

From April 2017 there will also be an impact on the inheritance tax payable on estates. Deemed domiciled will be triggered, as above, by being tax resident in the UK for 15 of the previous 20 tax years and the full worldwide estate of a deemed domiciled individual will be subject to UK inheritance tax. In contrast only the assets of a UK non-dom's estate situated in the UK will be subject to UK inheritance tax at 40%, for the first 15 years of UK tax residence.

The concept of "deemed domiciled" for tax purposes therefore already exists, and anyone triggering the...