Significant changes to the UK non-dom regime – the impact on offshore trusts

The draft UK Finance Bill 2017, which includes a number of reforms that will affect non-UK structures from 6 April 2017, was published yesterday.

Both UK and offshore practitioners have been anticipating the changes since the former UK Chancellor announced the introduction of the new regime on 8 July 2015. However, most practitioners have been reluctant to finalise advice to their clients or to launch into any significant restructuring until the draft legislation was published in case there were any last minute U-turns by the UK government.

As expected, the changes will see the end of the "non-dom" regime as we know it. Long-term UK residents who have been resident in the UK for at least 15 out of the prior 20 tax years will become deemed domiciled for all UK tax purposes (i.e. capital gains and income tax, as well as inheritance tax). UK resident individuals born in the UK with a UK domicile of origin will also be deemed domicile (despite having subsequently acquired a domicile of choice outside of the UK). These individuals will therefore lose some of the benefits previously enjoyed by them having "non-dom" status.

In the coming weeks, we will be working with UK tax advisers at law firms and accountancy practices to identify exactly what this means for offshore trusts. First indications are that it is not all doom and gloom and there are some positive features of the new regime which we expect will provide planning opportunities for certain individuals. For example, there will be some protection from UK tax for trusts settled by non-UK domiciliaries before they become deemed domiciled under the "15 out of 20 years" rule, provided that certain conditions are met. (This does not extend to UK residential property held in non-UK companies which will be subject to inheritance tax – click here for further details from our UK Real Estate Department.)

We will send you a further update once we have clarity on the position and the restructuring and planning work that should be undertaken prior to 6 April 2017. In the meantime, we would strongly recommend that individuals who anticipate that they will become deemed domiciled under the new rules and trustees of trusts with settlors who may be affected, urgently review their structures and take appropriate tax and legal advice.

We would be happy to assist you with your structure reviews and to co-ordinate the tax and legal advice required. Please do not hesitate to contact Kerrie or your usual Collas Crill contact for further information.

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