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  • IHT and non dom tax changes… and a little spanking

    24 February 2017

    Andy Wood

    IHT and non dom tax changes


    Although this may be a case of teaching grandma to suck eggs – is there any empirical evidence suggesting grandma was ever particularly proficient at such an activity? – but IHT is primarily focused on one’s domicile position rather than residence.

    The rule is that if one is domiciled in the UK then one pays UK IHT on worldwide assets. If that person is non-resident at the point of death it is irrelevant – unless he intends to reside outside the UK indefinitely and franks that intention with physical residence outside the UK.

    If one is non-domiciled then the starting point is that one is only subject to IHT on UK assets. Foreign assets being outside the UK’s clutches.

    However, unlike what we have seen historically for income tax and capital gains tax, this special treatment for non-doms has for many years had a limited shelf life.

    Once a non-dom has been resident in the UK for 17 out of 20 tax years then he or she is considered to be ‘deemed domiciled’ for IHT purposes. One can therefore fairly regard the income tax and CGT proposals that are being introduced as a fundamental part of the non dom tax changes as a means of playing catch up with the IHT provisions.

    Furthermore, there is an IHT ‘tail’ meaning that is one has been domiciled or deemed domiciled for IHT purposes one will remain so for three years.

    The new deemed domicile rule for IHT purposes

    The non dom tax changes leave us with a 15/20 year test under newly amended draft legislation.

    We have a brand spanking new rule for the brand spanking (apologies for all the spanking) new status of ‘former or returning UK domiciled residents’. They will get a one year grace period, however, in the second year of becoming UK resident, they will become deemed domiciled for IHT Purposes.

    It seems relatively clear what actions should be taken here. If one is not currently deemed domiciled then one should make sure that you revisit the date on which you will become so under the new rules. In other words, underline a different date on the calendar.

    As we will see in the next section, it is still possible to create a valid excluded property trust. However, it may well be that one has to do this earlier than previously anticipated and indeed it may be necessary for an individual to create such a structure prior to 6 April 2017. Though, practically, time may now be limited.

    Former or returning domiciled residents should fully appreciate the consequences of their special spanked status. This new status will have consequences for IHT, capital gains tax and income tax purposes.


    I apologise for tricking you in to reading this by the mention of ‘spanking’. A simple trick I am afraid. You fell for it. Rather that or you were actually interested in IHT and non doms. Which is more painful to admit?

    If you or your client have any queries about IHT and non dom tax changes (but not spanking) please get in touch