Bulletins | October 6, 2017


On 8 September 2017, the government published Finance Bill 2017-2019 (“the Summer Finance Bill”) reintroducing the majority of the proposed reforms to the taxation of non-domiciliaries (“non-doms”) put on hold due to the General Election in June. The reforms will have retrospective effect from 6 April 2017.

On 13 September 2017, Finance Bill 2017-2018 (“the Winter Finance Bill”) was published with further reforms relating specifically to offshore trusts, and these are expected to have effect from 6 April 2018.

The combination of these two Bills means that we now have a complete set of reform measures and finally some long-awaited clarity on how non-dom clients will be taxed going forward.


Once the Summer Finance Bill is enacted, with effect from 6 April 2017, there will be two new “deemed-domicile” tests, which will cause an individual to be deemed domiciled (“deemed-dom”) in the UK for the purposes of income tax, capital gains tax (CGT) and inheritance tax (“IHT”), even where they are a non-dom under general law. An individual will be deemed-dom in the following circumstances:

  • resident non-doms: after residence in the UK for fifteen out of the last twenty tax years (“the 15 year rule”); and
  • long-term resident non-doms: for those born in the UK with a UK “domicile of origin” who have since left the UK and acquired a “domicile of choice” elsewhere, during any return period of UK residence.

The effect of deemed-dom status will be to subject an individual’s worldwide estate to IHT and, for UK resident individuals, to prevent access to the “remittance basis” for foreign income and gains which will be subject to UK tax as they arise.

A deemed–dom will need six years of non-UK residence to “re-set the clock”, but in certain circumstances only four years is needed for IHT. However, there are concessions, which include for those deemed-dom under the “15 year rule”:

  • rebasing – assets can be rebased to their value as at 6 April 2017 for CGT in certain situations; and
  • cleansingmixed funds – there is a one year window from 6 April 2017 to separate foreign bank accounts into pots of clean capital, income and gains, so that remittances can be made from capital without triggering UK tax.


  • Review your domicile and residence status and that of family members, ascertaining when each will become deemed-dom, and consider making domicile and residence statements
  • Plan now for periods outside the UK to break future deemed-dom status
  • Consider making gifts and/or creating offshore trusts ahead of your deemed-dom date
  • Use the mixed funds cleansing opportunity


Once the Summer Finance Bill is enacted, an interest in an offshore company or partnership holding UK residential property will be subject to IHT with effect from 6 April 2017.

Any structures not “de-enveloped” prior to this date will be affected. Before 6 April 2017, such structures offered an IHT shelter. If caught, any shares owned by a non-dom (or deemed-dom) outright or via a trust in which the shareholder has a qualifying life interest, will be subject to IHT at the shareholder’s death at the rate of 40%. Shares held by an offshore discretionary trust will be within the IHT regime for trusts which includes an IHT charge every ten years at a maximum rate of 6%; but if the trust is settlor-interested, there will also be an IHT charge on the shares at 40% on the settlor’s death under the “gifts with reservation” rules. Such structures will need a priority review, if one has not already been carried out.

A loan used by an individual, company, trust or partnership to purchase, maintain or improve a UK residential property (a “relevant loan“) is also affected. Whilst the loan itself may be deductible from the value of the property for IHT, whoever has the benefit of the loan will be subject to IHT on the value of it. Assets used as collateral for relevant loans can also be subject to IHT. The rules are complex and can lead to double taxation in some scenarios, so affected loans should be carefully reviewed.


  • Consider de-enveloping but IHT, SDLT and/or CGT implications will need to be understood
  • Retain the structure for its limited liability and estate planning benefits, but mitigate the IHT through borrowing and/or co-ownership
  • Insert a trust into the structure and consider how to fund ongoing IHT charges
  • Shareholders should ensure a tax-efficient Will is in place; and similarly for family members
  • Existing “relevant loans” should be reviewed with a view to possible restructuring


The new deemed-dom rules will impact any offshore trust with settlors and/or beneficiaries who become deemed-dom once the Summer Finance Bill is enacted.


For settlors with interests in offshore trusts, the general rule is that, once deemed-dom, the gains and income arising to the trust will be attributed to him or her with no ability to use the remittance basis. However, protection will be available if the deemed-dom settlor set up the offshore trust before becoming deemed-dom provided no additions have been made to the trust since that date (known as the “trust protections” regime). “Additions” has a wide interpretation and can include non-commercial loans into or out of the trust involving the settlor. The “trust protections” are not available to “long-term resident non-doms”.

Being within the “trust protections” regime means:

  • CGT: a deemed-dom settlor will not be taxed on the trust’s gains as they arise; however, she or he will continue to be taxed on capital payments received from the trust (without the benefit of the remittance basis); and
  • Income Tax: a deemed-dom settlor will not be taxed on the foreign income of the trust as it arises, only if she or he receives a distribution which can be matched against the pool of accumulated income in the trust; they will be taxed on UK-source income as it arises.

The income tax regime for offshore trusts is being changed for non-dom as well as deemed-dom settlors, meaning that offshore trustees will need to familiarise themselves with the new rules whether or not their settlor is becoming deemed-dom. It is proposed that offshore trusts can remain an IHT shelter for foreign assets if the settlor is deemed-dom under “the 15 year rule”. However, this is not so if the offshore trust holds enveloped UK residential property: see “Enveloped UK residential property” above.


If income and gains are not taxed on the settlor, they are effectively attributed to the beneficiaries if they receive a benefit. Once deemed-dom, the beneficiaries will not be able to use the remittance basis and the distribution will be immediately subject to UK tax. Provisions are also being introduced for income tax purposes so that a UK resident, non-dom settlor will be taxed on distributions to beneficiaries who are “close family”, in certain circumstances. See also “anti-avoidance” below.


  • Ascertain domicile and residence of settlors and beneficiaries and assess impact of reforms
  • Offshore trustees will need to tread carefully where a trust has “protected” status to ensure the trust is not “tainted” by additions to the trust: small mistakes could have huge tax consequences
  • The trust’s loans should be reviewed to check that these have not caused inadvertent “tainting”, similarly with any proposed future loans involving the settlor (into or out of the trust)


The Winter Finance Bill contains three measures designed to prevent the avoidance or mitigation of UK tax on distributions from offshore trusts. With effect from 6 April 2018, the measures are:

  • washing-out”: benefits received by non-UK resident beneficiaries (who are not “close family” of the settlor) will no longer deplete (or “wash-out”) the trust’s stockpiled capital gains meaning these remain available for “matching” against benefits provided to UK resident beneficiaries;
  • close family”: distributions to a non-resident or remittance-basis-user beneficiary will be attributed to and taxed on a UK resident settlor if that beneficiary is a member of his or her “close family”. This widens the impact of the “close family” income tax provisions being brought in under the Summer Finance Bill. Similar attribution provisions will apply to capital payments received by “close family” for CGT purposes. “Close family” means the settlor’s minor child, or the settlor’s spouse, civil partner or cohabitant and the minor child of any of these; and
  • onwards gifts”: a capital payment to a beneficiary who, after 6 April 2018, gifts all or part of it to a UK resident person (a “subsequent recipient”) will be treated, to the extent that the original payment is not already taxed, as a capital payment direct from the trustees to the subsequent recipient if there was an intention at the original payment date to make an onwards gift. There is no time limit on the onward gift, and gifts made before, and in anticipation of, the original payment can also be within scope.


  • Make capital payments to non-UK resident beneficiaries before 6 April 2018 to “wash-out” stockpiled gains tax-free
  • Identify all “close family” of the settlor and consider making distributions to non-UK residents and remittance-basis-users before 6 April 2018

The Winter and Summer Finance Bills will now make their way through Parliament, but substantive amendments are not expected. Non-dom clients and offshore trustees who carried out planning in advance of 6 April 2017 will realise the benefits of that planning once the legislation is enacted with retrospective effect from that date. However, it is not too late for those that did not do so; although swift action during this tax year is advisable. The anti-avoidance provisions being introduced with effect from 6 April 2018 provide a fairly generous planning window for offshore trustees to make tax-efficient distributions to non-UK residents whilst they can.

To discuss the non-dom reforms and how they impact you or any trust you manage, please contact a member of our specialist offshore team or your usual Wedlake Bell adviser.