Taxing Times for Non-Doms Post-Brexit

Nick Warr
Published Date:
Aug 1, 2017

Against the backdrop of Brexit, increasing economic uncertainty, and the rather strange political environment after the United Kingdom’s recent general election, it is rather surprising that on July 13, 2017, Theresa May's government announced its intent to push ahead with the proposed changes to the beneficial tax regime, which applies to U.K. residents but non-domiciled individuals (“non-doms”).

This came as a surprise for several reasons—not least because some credit the current regime, together with a benign regulatory environment, with fuelling the resurgence of London as a major financial center over the last twenty years. Although these changes were originally announced in July 2015 after the last general election, they were—together with many other provisions—withdrawn from the recent pre-election finance bill with the hope that they would not be reinstated.

It is now clear, however, that the U.K. Treasury will go ahead with these changes, meaning that a non-domiciled individual who holds property in the United Kingdom through an overseas corporate structure from Apr. 6, 2017 onward will be subject to inheritance tax on the value.

Current non-dom legislation provides that individuals who are non-domiciled U.K. residents are only taxed on their U.K.-source income and gains, together with any non-U.K. source income and gains that they bring in—or remit—directly or indirectly into the United Kingdom. An individual who is non-domiciled will also only be subject to U.K. inheritance tax on their U.K.-situated assets until they have been a resident in the United Kingdom for 17 out of 20 tax years. 

Since the regime was last substantively changed in 2008, non-dom individuals were required to claim their status in U.K. tax returns on the basis that they genuinely consider themselves to be non-U.K. domiciled—either by having acquired a non-U.K. domicile in a particular country (or, in federal systems, state) from their father or mother, or by having moved to a particular country or state with the intention of living there permanently or indefinitely. Also, following the changes in 2008, if the non-dom had been resident in the United Kingdom for more than seven out of the previous nine tax years, then it is necessary for them to pay the so-called “remittance basis charge” at initially £30,000 ($39,125) but rising to £90,000 ($117,361) if they have been resident in the United Kingdom for 17 out of the previous 20 years. 

The changes are very wide ranging and—as one would expect from layered tax legislation—extremely complex. Fortunately, the regime has not been abandoned in its entirety, and elements of the old rules remain; however, the main elements of the changes mean that an individual who has been a U.K. tax resident for 15 out of 20 years will be deemed domiciled for U.K. tax purposes—and subject to U.K. income, capital gains, and inheritance tax on a worldwide basis. 

There are no so-called “grandfathering” provisions under the regime—however, where individuals become subject to the new regime (e.g., they have been resident in the United Kingdom for 15 out of 20 years as of Apr. 6, 2017), then they have the ability to rebase their non-U.K. assets to their current market value, subject to some qualifying criteria. Further, if individuals have non-U.K. accounts that comprise of so-called mixed funds (e.g., previously unremitted income and gains or clean capital arising from either gifts or previously taxed income that have all become mixed into one account), then they can effectively reconstitute the account having undertaken forensic accounting analysis.  

There are also some exceptionally useful provisions for those who have created non-U.K. resident trusts prior to becoming deemed domiciled under the new rules. These trusts effectively can provide long-term sheltering from income, capital gains, and inheritance tax, provided that no additional funds are added to the trust, whether directly or indirectly (which certainly is a trap for the unwary). 

The main question, however, is what the real impact of these changes mean for the U.K. PLC. The concern for many in London—especially those in the financial services sector—Is that these changes will have a disproportionate impact on London as a global financial center, given that it may not be possible to passport financial services throughout Europe under potential post-Brexit regulatory changes. While it is fair to say that the changes in isolation will not cause a mass exodus—a significant number of non-doms are globally mobile, and some are already undertaking actions to avoid being deemed a U.K. tax resident—these changes certainly will be more of a significant determining factor in the financial services industry, where benign fiscal treatment can have a disproportionate impact in view of the relatively short career cycles. Indeed, other European countries—in particular France and Italy—have effectively adopted the equivalent of a non-dom regime to attract not only individuals from the financial services industry, but also non-doms in general. These jurisdictions appreciate the huge indirect impact non-doms can have on the local economy. Some calculate that the indirect impact of these regulatory changes on the London economy could be in the region of £20 billion (more than $26 billion).

While the proposed changes were reintroduced with an effective date of Apr. 6, 2017, the relevant provisions of the finance bill still need to pass through Parliament. There is a hope, however faint, that these changes will be watered down—and that the U.K. government will realize that the direct tax gained from these changes will be dwarfed by the indirect tax that will be lost. We will have to wait and see.

WarrNick Warr is a partner in the private client department and head of Taylor Wessing’s  International Private Wealth group for the last three years. He specialises in advising ultra high net worth individuals and families with interests mainly on fiscal and succession planning. His practice is international in nature and he represents individuals, families and family offices in the Middle East, the USA and Europe, as well as the United Kingdom.  The majority of his clients have personal and business interests in a number of different jurisdictions. Nick also has particular expertise in advising individuals from the finance industry on all aspects of their personal and corporate structuring and acts for a significant number of investment bankers, hedge fund managers and private equity principals from the top tier organizations and funds. Nick also acts for professional trustees in Jersey, Switzerland, Mauritius, Bahamas and Guernsey. He can be reached at

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