Reliefs under new domicile tax rules | KPMG | UK
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Draft Finance Bill 2017: Reliefs under new domicile tax rules

Reliefs under new domicile tax rules

Transitional arrangements will be introduced on 6 April 2017 to help long-term remittance-basis taxpayers to adjust to paying tax on the arising basis thereafter.


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Who should read this?

All non-UK domiciled UK resident individuals (other than those born in the UK with a UK domicile of origin). 

Summary of proposal 

All non-UK domiciled UK resident individuals (except returning non-doms) have a one–off opportunity to re-organise offshore mixed funds into their constituent parts. Additionally, long term residents becoming deemed domiciled from 6 April 2017 can rebase non-UK sited assets tax-free, so that only future gains are taxable thereafter.  

Transitional arrangements will be introduced on 6 April 2017 to help non-UK domiciled UK resident taxpayers who have claimed the remittance basis for many years to adjust to paying their UK taxes on the arising basis for the first time. Such provisions include the facility to rebase offshore assets for capital gains tax (CGT) purposes and the ability to rearrange funds within overseas bank accounts to allow for remittances from overseas clean capital in priority to taxable income and gains, marking a significant shift in the current position.

However neither of these provisions will apply to ‘returning non-doms’ i.e. those individuals who were born in the UK with a UK domicile of origin who have since acquired a new foreign domicile of choice whilst non-UK resident, but who then become UK resident again post-6 April 2017.

The transitional arrangements are:

Cleansing of mixed funds

Who can benefit?

Many non-doms may have existing mixed funds where it would be beneficial to segregate out the various components of that fund. A common scenario is having a single bank account containing a mixture of capital, income and gains arising from different sources and spanning several tax years. Where these funds are held in a single account rather than segregating each source individually, this would constitute a mixed fund.

The new rules announced by the Government will enable any non-dom, who has been taxed on the remittance basis prior to 2017/18, to rearrange their mixed funds held in non-UK bank accounts to their constituent parts e.g. the income, capital gains, and ‘clean’ capital elements. This includes those where the remittance basis applied without being claimed (for example when an individual’s foreign income or gains were less than £2,000 so the remittance basis applied automatically).  

The Government have called this ‘unmixing’ of mixed funds “cleansing”.

In order to qualify for cleansing the non-dom does not need to have their mixed fund on 5 April 2017 (as was proposed by the Government’s August 2016 consultation document).

What is the impact of the cleansing of mixed funds?

The current remittance basis rules governing mixed funds (i.e. most commonly non-UK sited bank accounts consisting of a mixture of so called ‘clean’ capital, income and capital gains) dictate that taxable income and capital gains of a given tax year are treated as remitted before non-taxable ‘clean’ capital.  The current rules also prevent the separation of these elements into different offshore accounts.  Non-doms have therefore often found their offshore ‘clean’ capital ‘trapped behind’ other taxable amounts by the application of these rules, where appropriate account segregation has not been operated.

This transitional arrangement will be in place for the 2017/18 and 2018/19 tax years only and will apply to nominated transfers of money only from a mixed account to another account.  

Individuals will, for example, be able to identify untaxed income in mixed bank account A, and transfer it into a new segregated income account B. 

Being able to make these bank transfers will give non-doms the one-off ability to rearrange their overseas bank accounts. This will to allow them to remit any ‘clean’ capital from overseas which was previously trapped in a mixed fund in priority to taxable income and gains.  Being able to do so will allow non-doms more accurately to manage their tax exposure when bringing monies to the UK and provides an incentive to invest in UK expenditure.

Do I need to make an election?

The two year window will be available to all non-UK domiciled individuals who have been taxed on the remittance basis at some stage prior to 6 April 2017. 

No election is needed under draft legislation but the un-mixing of funds has to be nominated by the account holder.  This is likely to mean that an account holder must give the relevant financial institution (e.g. their bank) the correct instructions in order for any transactions to have the desired UK tax effect.  Non-domiciled taxpayers should therefore be wary of giving their bankers incorrect or unclear instructions, or of assuming that they will be able to benefit from this relief automatically without giving any written instructions at all. 

Is there anyone who will not be able to benefit?

Individuals born in the UK with a UK domicile of origin are specifically excluded from benefiting.


Who can benefit?

Individuals becoming deemed domiciled on 6 April 2017 under the 15 out of 20 year rule will be able to benefit from rebasing of their foreign situated capital assets to their market value on 5 April 2017, for CGT purposes.

What is the impact of rebasing?

On a future sale of an asset triggering a gain within the charge to CGT, only capital gains accruing from 6 April 2017 onwards would be subject to CGT.

There will be no need to hold sale proceeds offshore to benefit from this protection.

Do I need to make an election?

Rebasing will apply to a disposal automatically unless the taxpayer makes an election for the rebasing not to apply.

Will rebasing apply to all foreign assets?

Rebasing will only apply to unrealised gains in directly held assets, i.e. it does not apply to assets held in wrappers like trusts and companies.

The rebasing only relates to capital gains subject to CGT, so certain assets such as so-called ‘non-reporting funds’ will be specifically excluded from the rebasing provisions.

Untaxed income/gains originally invested to acquire assets eligible for the rebasing will not benefit from protection under rebasing and a tax charge may still therefore arise if the disposal proceeds are remitted to the UK.  

Rebasing will only apply to assets held on 5 April 2017 that have been non-UK situated at any time between the period starting on 16 March 2016 and ending on 5 April 2017.  This is a concession in favour of the taxpayer granting more favourable conditions than were first announced and may provide an opportunity for rebasing of a wider class of assets than previously envisaged, e.g. non-UK sited assets could be appointed from a non-UK trust prior to 5 April 2017.

Specific rules have also been drafted concerning company reorganisations, where shares in one company have been received as consideration for a sale of shares in a different company. These are intended to ensure a consistent approach is applied across various holdings.

Are there any other conditions?

Rebasing will only apply for individuals who have paid1the remittance basis charge in any year before 5 April 2017 and who become deemed domiciled under the 15 out of 20 year rule on 6 April 2017. 

Individuals who elect for rebasing not to apply to a disposal will be able to make the election within the period ending four years after the end of the year of disposal. Once made, the election is irrevocable.

Is there anyone who will not be able to benefit?

Rebasing will not be available for individuals who become deemed-domiciled after 6 April 2017.

Individuals born in the UK with a UK domicile of origin are also specifically excluded from benefiting.


6 April 2017

Our view 

Should non-doms be considering any action before April 2017 in relation to both of the transitional reliefs?

When considering the application of both transitional reliefs above, non-doms will need to review all their offshore holdings carefully now, so as to ensure that they can benefit from the transitional reliefs available.  

Consideration may now also need to be given to:

I. Ascertaining any mixed funds and undertaking work to identify sums which will be eligible for this treatment. 

II. Identifying assets not currently held personally but that may qualify for either of the transitional reliefs. For example:

  • For the rebasing relief, assets that are not directly owned but could be directly owned as at 5 April 2017. Such assets could include assets currently held by a trust, or assets held by spouses where one spouse is the 100% owner of an asset but the other spouse is the one that has claimed the remittance basis.
  • For the ‘cleansing’ of the mixed funds relief, as well as considering directly held bank accounts, consider asset disposals or trust distributions prior to 5 April 2017, in order to generate mixed funds such that the ‘cleansing’ provisions will apply to these post 6 April 2017 in order to split the funds into their constituent parts.  

For further information see

Big changes for non doms

UK residential property


Mike Walker

+44 (0)20 7311 8620 

Alexander Marcham

+44 (0)20 7311 4976 

Fran Power

+44 (0)115 935 3545 

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