The Chancellor has announced certain changes, which will need to be checked for their impact on their introduction as from April 2017.

First and foremost, there is no change to the laws of domicile within the general law of the jurisdictions making up the United Kingdom. Note the slight differential in Scots law. That is the first point of legal reference for the lawyers and accountants addressing this point and also for any will-writers adventuring into this area.

This is a Tax law point, so there will be a potential for missmatches between any Estate as it is dealt with at Law, and the fiscal implications of these changes by reference to the tax legislation addressing those estates.

It is too soon to determine whether the term "habitually resident" will become practically synonymous with the fiscal domicile term. For the moment it appears that  an individual can become habitually resident prior to the deemed domicile coming into effect. That will be of relevance to the European Succession Regulation's impact upon those with interest in the EU and the inheritance tax and succession duty issues related to that.  There will be a missmatch between the notionof habitual residence and the  Succession Regulation's methodology of determining habitual residence and close connection. It will not necessarily correlate, and there is therefore room for differentials of treatment where several jurisdictions are involved.

However the plan is to treat those born in the UK  with a UK domicile of origin who remove themselves and then return to the UK, as immediately reverting to a UK domcile of origin on taking up residence.  It is curous that that does nojt already follow fomr the generla law, as taking up residence in one's domicile of origin should normally be sufficient to revive it, with the immediate loss of the domcile of choice.

This will not be of immediate concern to individuals born abroad to a UK domiciled Father, where legitimate or to a UK domiciled  mother if natural, buit there will be a general legal issue as to whether any return to the United Kingdom will cause their UK domicile of oriigin to revert under the general law.  Such individuals should seek immediate advice on trusts prior to removing to the United Kingdom in future, as there remains a degree of flexibility for those born outside of the United Kingdom.

Some of the changes take effect as from April 2017.

 

• "Deemed domicile" rule after 15 years of UK residence

 

From April 2017 any non-dom (including someone who is already in the United Kingdom) who has been resident for more than 15 out of the past 20 tax years will be "deemed" to be domiciled in the UK for all tax purposes.  From then on, the non-dom will be taxable on their worldwide income and gains and will pay inheritance tax on worldwide assets in the same way as a UK domiciled taxpayer.

The exact wording of this deeming provision will be crucial as there are currently four Estate Duty Treaties which were previously not affected by the IHT Deemed Domicile provision: France, Italy, India and Pakistan.  It will be interesting to see whether HMRC will attempt to bridge that anomaly, causd by the Estate Duty IHT differential using the "all tax mechanism proprosed by George Osborne.

 

• Excluded property trusts set up before becoming deemed domiciled will still function.

It is proposed that deemed domiciliaries who have set up offshore trusts will not be taxed on trust income accumulated in the trust whilst non-domiciled, but will pay tax when receiving a benefit from the trust if the settlor is about to become deemed domiciled. This is a very significant change which will require all non-dom settlor interested trusts to be reviewed.

 

• New rules for "returning UK doms" born in the UK

 

From April 2017 individuals born in the UK with a UK domicile at birth will not be able to benefit from the non-dom taxation regime at any time that they are UK resident (including individuals who are currently UK resident). If you were born outside the UK this will not affect you immediately.

An excluded property trust set up while non-domiciled will cease to be effective after becoming UK resident.  This means that inheritance tax will be payable on the settlor's death if he is a beneficiary.

• Inheritance tax on UK residential property owned by companies

 

From April 2017 all UK residential property held indirectly by non-doms or excluded property trusts through opaque vehicles such as companies, foundations or partnerships will be subject to inheritance tax.  The rules will apply to non-residents as well as UK residents. 

This is likely to mean that there will be no benefit (and, unless commercially let, significant disadvantages) in holding UK residential property through a company. 

These changes will require all structures/planning for non-domiciliaries (including some non-residents) to be carefully reviewed and, in many cases, restructured.

 

• Inheritance tax on homes

 

Main residence nil rate band

 

As expected, there will be an increase in the inheritance nil rate band of £100,000 in 2017/18, rising to £175,000 in 2020/21 enabling individuals to pass their main residence on to their children or grandchildren on death.  Like the existing nil rate band (which will remain at £325,000 until 2020/21) this additional relief will be transferable between spouses meaning that properties up to £1m can pass tax free.  The "main residence nil rate band" will be reduced for estates worth more than £2m at a withdrawal rate of £1 for every £2 over the threshold.

Although the main residence nil rate band appears to generously increase the current relief in the context of the family home, the fact that it will not be available to higher value estates, means it that in practice its scope may be limited.