Briefing Note


  • A non-UK trust of which one of its trustees is UK resident will become UK resident when settlor becomes deemed UK domiciled.
  • Rules apply from 6th April of RND’s 16th tax year.
  • CGT rebasing for RNDs only. Trustees have to consider planning.
  • Some grandfathering for pre 6th April 2017 non-UK trusts.
  • Washing out gains of non-UK trusts curtailed.

UK Deemed Domicile

The draft Finance Bill 2017 contains further details of how the new deemed UK domicile rules will work from 6th April 2017.

The main effect will be on those claiming the remittance basis (RNDs) and non-UK resident trusts which have UK resident beneficiaries or potential beneficiaries.

A glossary of terms is at the end of this note.


The starting point, already been seen in the changes to CGT principal private residence relief, and driven by the computerisation of HMRC’s processes, is that everything is driven on years of assessment, i.e. 6th April to 5th April.

So, the new 15 years out of 20 rule means that an individual becomes deemed domiciled for income tax, CGT and IHT on 6th April of their 16th year of assessment in the UK out of the last 20.

Invariably the first year of arrival will be less than 365 days.

Second, these rules will therefore apply from 6th April 2017 to people who have been UK resident for many years and may already be deemed domiciled in the UK.

For those who have not been resident in the UK for 15 years out of the last 20, these rules will apply from a future 6th April.

These people therefore have more time to plan their affairs.

For those who will be deemed domiciled from 6th April 2017, there are some useful, if complex, transitional rules on remittances from mixed accounts which are available until 5th April 2019.

RNDs will be able to use April 2017 market value on future disposals of non-UK assets held by them on 8th July 2015.

Finally, at the risk of stating the obvious, these rules, and the benefits applicable to trusts, cease to apply if the individual becomes UK domiciled by choice.

Non-UK resident Trusts

The first and immediate point to note is that if the trust has a trustee who is a UK tax resident, then even if all of the other trustees are non-UK resident, the trust will become UK tax resident as soon as the settlor becomes deemed UK domiciled.

The settlor will also become taxable under s.86 TCGA and not s.87. A s.87 trust is much more valuable to an RND than one caught by s.86.

The second key point is that if assets or value, e.g. interest free loan, are added to a pre 6th April 2017 trust, then the grandfathering protections are lost.

Washing out income and gains in a s.87 trust is significantly curtailed.

Under the new rules where capital payments are made to a spouse or minor child, then the RND settlor is taxed i.e. s.86 applies.

Where capital payments are made to another beneficiary and were not already taxed under s.86, then the gain or income is washed out unless that money finds its way to a UK resident beneficiary within three years, in which cases .87 applies when that later transfer is made.

Unlike the position for individuals, and the changes in 2009 and 1982, there is no re-basing of capital assets held outside the UK, so trustees should consider whether it is worth triggering a gain and distributing out the proceeds now under the remittance basis, or triggering a larger gain when the remittance basis is not available.

Once a UK resident beneficiary is deemed UK domiciled, capital payments made to that beneficiary anywhere in the world are potentially taxable under s.87.

So, funds which stay in the trust remain non-taxable, but funds paid out to a UK resident beneficiary will be taxed.

Care must be taken not to artificially inflate the “s.87 pot” e.g. by doubling gains, once under s.13 (gains of non-UK companies apportioned to shareholders) and again on an actual disposal or liquidation of the non-UK company.


There are a myriad of solutions, some of which will need no action, e.g. checking whether the trustees’ investment qualifies for BPR. Some may require re-basing, and others may reduce income tax etc. but increase IHT risk.


Whilst there are no new anti-avoidance rules, the usual caveats apply re Ramsay, the DOTAS regime and the GAAR.

Glossary and small print

This paper assumes that the reader has a knowledge of UK taxation of HNWIs and RNDs, and is either a client of this firm or an adviser to such a client, and is of course no substitute for advice based on your personal facts and circumstances.

No liability is accepted for reliance by any person upon any statement made in this paper.

Section 61(2) Law of Property Act 1925 applies to this paper.

This paper is not investment advice, all decisions must be mode by you or your financial advisers.

This paper is for information only.

ATED – annual tax on enveloped dwellings; CGT – capital gains tax; entity – any entity other than an individual; HMRC – HM Revenue & Customs; IHT –inheritance tax; RND – an individual who is UK tax resident but not domiciled or deemed domiciled in the UK (both pre and post April 2017) and claims the remittance basis of taxation; s.87 trust – a non-UK resident trust whose settlor is either not UK resident or not UK domiciled; s.87 pot – the total amount of chargeable gains remaining in a trust after deductions for gains matched to capital payments.

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