UK: Offshore Trust Deadline Looming For UK Non-Doms

Individuals who will be deemed UK domicile from 6 April 2017 should be considering their options with regard to offshore trusts as a matter of priority.

On 5 December 2016, the UK Government published the Reforms to the taxation of non-domiciles: further consultation outcome, which provided clarity on the following areas:

Inheritance tax on UK residential property

The government plans to apply inheritance tax (IHT) to residential properties in the UK where they are held within an overseas structure.

The charge will apply both to individuals who are domiciled outside the UK, and to trusts with settlors or beneficiaries who are non-domiciled, and will come into effect from 6 April 2017. It will be legislated as part of the 2017 Finance Act.

Deemed UK domicile for long-term residents

The consultation period confirmed that the IHT deemed-domicile provisions would change to be brought into line with the proposed changes to income tax and capital gains tax. This would have the effect of treating an individual as deemed-domiciled for IHT, when they have been resident in the UK for at least 15 of the past 20 years.

As with the income and capital gains tax provisions, for those who leave the UK before 6 April 2017 but are nevertheless deemed domiciled under the 15/20 rule on 6 April 2017, the present rules apply.

Born in the UK with a UK domicile of origin

The UK Government believes it is only reasonable to treat those individuals born in the UK and with a domicile of origin as being domiciled in the UK for tax purposes, when they are resident in the UK.

Tax planning for non-domiciled individuals – and how we can help

The use of offshore trusts by non-domiciled individuals appears to be of increasing importance for tax planning purposes, and for individuals that will be treated as deemed UK domicile on 6 April 2017.
Creating an offshore trust before this date is something that should be considered with a tax advisor as a matter of priority.