The latest set of provisions for non-doms, published in the Finance Bill 2017, are complex. The provisions in relation to income tax and capital gains tax are very similar to one another, but some of them come into play retrospectively as from 5 April 2017, others from 5 April 2018. The changes affect both individuals and trusts.

Planning points

  • Distributions from trusts can be made before next April, in order to reduce the gains taxable on UK beneficiaries, by distributing to non-UK resident beneficiaries.
  • Many non-doms may be able to benefit from the cleansing provisions but action needs to be taken soon, given the complexities of many people's affairs, in order to disentangle what can be cleansed.
  • Where there are existing loans not on arm's length terms made to trustees, these should be converted to arm's length terms or repaid, before 6 April 2018, so as not to be treated as tainting the trust.
  • Arrangements under which benefits are made available to UK residents should be reviewed.


From 6 April 2017, individuals resident in the UK for 15 of the last 20 tax years are deemed domiciled for all purposes, and those born in the UK with a UK domicile of origin and who are resident cannot enjoy any of the benefits of non-domiciliary status.

The provisions announced previously allowing certain non-domiciliaries to rebase their assets as at 5 April 2017 have been confirmed, as expected. It may also be possible to 'cleanse' mixed funds so as to allow clean capital to be brought to the UK. The period for doing so ends on 5 April 2019 and we urge those who will be caught by the domicile rules to act as soon as possible on this front.

Inheritance tax (IHT) for UK residential property held in structures

As in earlier drafts, UK residential property held in a company or partnership (and owned by a non-domiciliary, or by a trust created by a non-domiciliary) is no longer excluded from the charge to IHT (from 6 April 2017). The rules also impose IHT on loans used to purchase such property and the collateral to support such loans. These rules may result in an amount significantly more than the value of the UK property being brought into the charge to IHT.

Trust protections

The broad principle is that there should be protection from tax for trusts created by non-doms while they are not deemed domiciled (though not including, of course, any trust created by anyone in the pariah category of those born in the UK with a UK domicile of origin). Under the drafts, broadly, from April 2017, foreign income and gains in offshore trusts created by a non-domiciled person are only taxed when distributed. Apart from UK residential property, such trusts also still shelter the assets held from IHT.

For both income and capital gains tax (CGT), it is extremely important that assets are not added to a trust by the settlor or from a related trust, once the settlor is deemed domiciled. If assets are added, then the trust protections are lost completely and forever. There are detailed provisions about loans and when these will be an addition of property.

The UK resident settlor of an offshore trust is subject to income tax on payments from trusts to close family members (spouses/partners/minor children), who are not themselves taxable, as from 6 April 2017. The same rule applies for capital gains tax but with effect from 6 April 2018.

There are complex anti-avoidance provisions intended to tax a UK resident beneficiary or, in some cases, the UK settlor, where a payment is made out of a trust to a non-resident person and there is an arrangement under which the payment is eventually received by a UK resident beneficiary. There is no limit on the period between the first and second payments.

Distributions of capital made after 5 April 2018 from trusts to non-UK residents will no longer reduce the amount of the gains in the trust which are taxable to CGT on a distribution to a UK resident.

There are also provisions putting on a statutory basis the taxable value of benefits received from a trust when beneficiaries receive a non-arm's length loan, or the right to use or occupy land, or chattels, rent free or at a low rent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.