HMRC has published guidance on the new inheritance tax (IHT) deemed domicile rules which apply from 6 April 2017, and include changes to the number of years of residence needed in the UK for deemed domicile to apply and the addition of a new category
Before 6 April 2017 an individual was UK domiciled if they were resident in the UK for 17 of the 20 years of assessment ending with the year in which the relevant time fell.
From 6 April 2017 this changes so that someone is UK domiciled if they are resident in the UK for 15 of the 20 years before the relevant year.
HMRC advises a taxpayer can still be treated as UK domiciled even if they are not resident in the UK at the relevant time. If someone left the UK before 6 April 2017 and does not return the new rules do not apply.
Under the changes, there is a new category, that of a formerly domiciled resident. This applies to someone born in the UK with a UK domicile of origin, who has acquired another non-UK domicile of choice, and is resident in the UK and was resident in the UK in at least one of the two previous tax years.
However, if someone is a formerly domiciled resident, property they settled on trust when they were not domiciled in the UK cannot be excluded property for the purposes of IHT. This does not apply if someone is only deemed domiciled under the new rules.
HMRC says the new trust protection measures makes sure an IHT trust charge does not arise when someone is no longer resident in the UK, or a formerly domiciled resident.
Technical guidance and examples about these changes will shortly be published in HMRC’s IHT manual.
HMRC advises that anyone who has a non-UK domicile of origin is not affected by the changes for formerly domiciled residents. They are, however, subject to the deemed domicile rules and the UK residential property rules.
