UK Summer Budget Statement - changes for non-doms


UK Summer Budget Statement 2015

In the first Budget Statement since the general election earlier this year, the UK Chancellor, George Osborne, announced a number of changes to the UK’s non-doms rules, as well as changes to inheritance tax, the taxation of dividends and further reductions to the level of corporation tax.

Proposed Changes to the Non-Dom Rules

The UK operates an advantageous system for UK resident non-domiciled individuals (non-doms) under which qualifying individuals can reside in the UK and are taxed on the remittance basis. Under this scheme resident non-doms are taxed on their UK source income and gains and only the foreign source income and gains that are remitted to the UK; subject to the payment of an annual remittance basis charge determined by the length of their residence in the UK. While the scope of the scheme has been reduced in recent years, it remains attractive scheme.

The government will open a consultation period on the following changes which it proposes will take effect from 6th April 2017:

Deemed Domicile

A non-dom individual who has been UK resident for 15 of the last 20 years will in the 16th year of residence, be deemed from then to be UK domiciled for UK tax purposes while remaining foreign domiciled under general law. The effect of this deeming provision will be to draw previously non-dom individuals into the UK tax net, becoming subject to UK tax on worldwide income and gains and inheritance tax on their worldwide estate on death.

This deeming provision does not affect the position under general law, nor does it affect the domicile of the individual’s children.  It would be possible for non-doms to leave the UK before the deemed provision applies in the 16th year of residence and return after 5 full years of absence from the UK to start the 15 years running again.

The recently introduced increase to the remittance basis charge for non-doms resident for 17 years has as a result of this further change been rendered obsolete.

UK Domicile of Origin

An individual with UK domicile of origin, who has been tax resident in the UK for 15 years of the last 20 years, on leaving the UK and acquiring domicile in another jurisdiction, will continue to be deemed UK domiciled for tax purposes for the five tax years following his departure from the UK.

At the end of the five years, the individual will escape from the scope of UK inheritance tax on his worldwide estate on death. At this point he can consider establishing a trust to protect those assets from UK inheritance in the long term. However, such an individual must be aware that the protection will be lost should he return to the UK, while it is possible that it may be recovered should he later leave the UK.

Return of UK Doms to the UK

The current rules permit an individual with UK domicile of origin, to leave the jurisdiction and having lost UK domicile, to then return to the UK and claim the benefit of the UK non-dom rules. To prevent this perceived unfairness, an individual with UK domicile of origin will on returning to the UK as tax resident will immediately be treated as UK domiciled on return.  This rule will apply from April 2017, whether the individual returns before or after 6th April 2017.

Non-Doms UK Residential Property

At present, an individual non-dom allow UK residential property to be held by the non-dom either directly or indirectly, though an offshore company, trust or other structure which will not be subject to UK inheritance tax. From April 2017 this may no longer be the case, as the property might be subject to UK inheritance tax regardless of whether it is let or occupied by the non-dom or his family.

It is proposed that the change will not affect any other UK assets, regardless of whether they are directly or indirectly held. It is also intended it will not affect diversely owned entities that hold UK residential property or other non-UK assets held by UK resident non-doms.

Non-doms who continue to hold UK residential property and presently pay the Annual Tax on Enveloped Dwellings (ATED), may wish to reconsider the merit of retaining the structure, should the inheritance tax advantage may be lost. The government is aware that the cost of de-enveloping now will be more costly than had the property been de-enveloped earlier and will consult on this issue.

Claims to apply remittance basis

In the 2014 Budget the Chancellor announced a consultation on proposed changes to claim the remittance basis of taxation on an annual basis. These proposals have now been dropped and it will continue to remain possible to elect to apply the remittance basis annually.


A consultation paper on all the proposed changes outlined above will be published by the government in the course of the summer, before legislation is expected to appear in the Finance Bill 2016 later this year.


There is better news elsewhere in the Chancellor’s Budget Speech including:

Inheritance nil rate band for residential property.

Tax free allowance for dividends.

Further reductions to Corporation Tax.

with less encouraging news on pensions and others.

Inheritance nil rate band for residential property

An additional Inheritance Tax nil rate band will be introduced in April 2017 when an individual’s main residence passes on death to their children or grandchildren; other relatives are excluded as are lifetime transfers. When introduced the nil rate band will be limited to £100,000 each but will rise to £175,000 each in 2020 with the effect  that on death a married couple or civil partners can leave up to £1 million free of inheritance to their children and grandchildren.

Properties where the deceased has never lived are excluded and only one property can have the benefit of the nil rate band. The nil rate will be tapered in cases where the deceased’s estate is over £2 million, by £1 for every £2 in excess of £2 million and is not applicable where the deceased’s net estate is over £2.35 million.

The current nil rate band applicable to all estates has been frozen at £325,000 until the end of the 2020/2021 tax year. Tax is levied at the rate of 40% on sums in excess of the nil rate bands.

Transfers between spouses and civil partners are free of inheritance tax. Should the £325,000 nil rate band not be used on the first death, it may be applied on the second death so giving a maximum nil rate band of £650,000. With the addition of the couple’s additional nil rate band of £350,000 from 2020 (£175,000 each) £1 million may be left free of tax.

Tax free allowance for dividends

The current system of dividend credit will be abolished at the end of the current tax year in April 2016. It will be replaced by an annual £5,000 tax free allowance. For sums in excess of the allowance higher rate tax payers will be taxed at 32.5% with additional rate taxpayers paying 38.1%.

Further reductions to Corporation Tax

The rate of Corporation Tax will be reduced from its current level of 20% to 19% in April 2017, with and a further reduction to follow in April 2020 when the rate will fall to 18%.


With effect from April 2016, the current life time allowance will be reduced from £1.25 million to £1 million. There will also be restrictions on pension tax relief with the annual allowance being subject to a tapered reduction for individuals with income in excess of £150,000.

Buy to Let Investors

From April 2017 landlords will no longer be able to obtain a tax deduction for the finance cost of purchasing a buy to let property.

Common Reporting Standard (CRS)

In advance of the CRS taking effect in 2017, a new limited disclosure facility will be offered on less advantageous terms than the facilities currently offered, all of which will end later this year.

Under the CRS financial institution are required to identify account holders resident in countries which have entered information exchange agreements with the UK and are required to collect information which they are obliged to report to HMRC.

Recovery of unpaid tax

Subject to receiving Royal Assent, HMRC will soon have powers to recover unpaid tax directly from the tax payer’s bank account for debts of over £1,000, if the account contains over £5,000.