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UK Government drops changes to tax domicile and taxation of enveloped UK residential property

The Chancellor of the Exchequer today unexpectedly announced that the UK government is dropping various provisions from the Finance Bill 2017, including new rules regarding deemed domicile and changes to the taxation of UK residential property held through companies. This means that, as things stand now, these new rules will not come into effect from 6 April 2017.

The government has stated that the changes are still policy and will be reintroduced after the General Election in June 2017 but how this will work, the date from which reintroduced legislation will have effect and the position between now and then is unclear at the moment. Matters of policy will also depend upon which party or parties are elected to government in June.


Deemed domicile rules


The Government proposed new rules that would mean that non-domiciled individuals who had lived in the UK for 15 out of the previous 20 years and ‘formerly domiciled residents’ would be treated as UK domiciled for all UK tax purposes. They also proposed rebasing and cleansing reliefs for certain non-doms.


These provisions have now been dropped.



The effect is still not entirely clear but we anticipate that it means that:

  • Long-term UK resident non-doms will be able to claim the remittance basis for 2017/2018; and
  • Long-term UK resident non-doms will not be able to rely on rebasing for sales of non-UK assets they have already made after 5 April 2017.

What should non-doms do?

  • Speak to your UK tax adviser immediately if you are a long-term UK resident or an FDR or have taken any steps in anticipation of the Finance Act 2017.
  • If you have already sold non-UK assets in reliance upon rebasing relief, you should keep the proceeds outside the UK so that you may use the remittance basis to protect them from UK tax if necessary.
  • If you have ‘cleansed’ mixed funds already you should not remit them to the UK.
  • If you are in the process of cleansing you should put it on hold for now.
  • In general, sit tight until we know what the UK Government is likely to do in relation to non-doms – this will almost certainly not be until after June 2017.


UK residential property


The Government has dropped changes to the UK inheritance tax treatment of certain property-owning structures as well as other proposed changes to debts and security used in respect of UK property. 

In summary, the Government will not:

  • regard companies or partnerships that own UK residential property as being transparent for UK inheritance tax purposes;
  • treat loans used to buy UK residential property as UK situs (unless already UK situs under general law); or
  • treat assets held as security for loans used to buy UK residential property as UK situs.


The fact these changes have been withdrawn means that offshore property-holding companies will continue to be treated as “excluded property” (i.e. not subject to UK inheritance tax) at the present time. In addition, loans which would have been treated as “relevant loans” and assets used as security will not necessarily be subject to IHT.

What to do

We are aware that clients may have already started the process of rearranging their personal affairs and wealth-holding structures to plan for these changes. 

We advise all clients to:

  • take no further action in connection with restructuring their UK residential property, property-holding companies and relevant loans (for example “de-enveloping” transactions, waiver of loans or reorganising security for such loans); and
  • take immediate advice on their current UK tax exposure and what the UK tax treatment of property-holding arrangements will be in light of the above.

Published: 26 April 2017

A moment of clarity

April 2017

Key Contact

Alex Ruffel