HMRC has updated its guidance on the deemed domicile rules and this includes the changes that came into force from 6 April 2017. You should be aware of the changes and how these might affect your clients in the current tax year.
The rules before 6 April 2017
Before 6 April 2017 if a person was resident but not domiciled in the UK under common law they:
were liable to UK tax on all income and capital gains which arose in the UK
could claim the remittance basis and only pay UK tax on their foreign income and capital gains when remitted to the UK
could claim tax relief on overseas workdays for the first three years they were resident in the UK
What are the changes?
From 6 April 2017 the rules for deemed domicile have been altered so that even if they were not domiciled in the UK under common law they would still be deemed to be domiciled if either of two conditions are met:
To meet this condition they must:
be born in the UK
have the UK as their domicile of origin
be resident in the UK for 2017 to 2018, or later years.
Condition B is met when they have been UK resident for at least 15 of the 20 tax years immediately before the relevant tax year. (There is detailed guidance on which years count in HMRC’s guidance, see above.)
Why is this important?
The changes affect domicile status for all taxes. The major issue this causes is that a client who meets the new deemed domicile rules will no longer be able to claim the remittance basis of taxation and will be assessed on their worldwide income and gains on the arising basis.
This could result in higher taxes in the 2017/18 tax year and so as a planning issue clients will need to be fully advised of the changes in good time. Detailed guidance on all residency and domicile issues from HMRC can be found here.