Before the 6 April 2017 anyone resident but not domiciled in the UK was 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 foreign income and capital gains when remitted to the UK; and could claim tax relief on overseas workdays for the first three years they were resident in the UK.

From 6 April 2017 new deemed domicile rules came into force, which mean individuals who meet either of two conditions are treated as domiciled in the UK for all tax purposes and are 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.

Condition A is defined as someone born in the UK, with the UK as their domicile of origin who is resident in the UK for 2017 to 2018, or later years.

Anyone born in the UK with a UK domicile of origin at birth, can acquire a domicile of choice outside the UK under common law, if they have resided in another country or law territory with the intention of staying there permanently. If they then return to the UK on or after 6 April 2017 and become UK resident for that year, they will automatically be deemed domiciled in the UK for tax purposes, under condition A.

Condition B is met when someone has been UK resident for at least 15 of the 20 tax years immediately before the relevant tax year. The guidance signposts to further information on how to count split years and the statutory residence test.  Individuals can lose deemed domiciled status under condition B if they leave the UK and there are at least six  tax years as a non UK resident in the 20 tax years before the relevant tax year.

From 6 April 2017 the remittance basis charge changed to two levels of charge. These are £30,000 for non-domiciled individuals who have been resident in the UK for at least seven of the previous nine tax years immediately before the relevant tax year; and £60,000 for non-domiciled individuals who have been resident in the UK for at least 12 of the previous 14 tax years immediately before the relevant tax year.

The £90,000 charge no longer applies from 6 April 2017, because of the deemed domicile changes brought in from that date.

Anyone who has used the remittance basis before 6 April 2017 but after that date is deemed domicile for UK tax purposes must continue to tell HMRC when they remit any foreign income or gains to the UK that arose in a year when they claimed the remittance basis.

Any remittances made in a year when someone is deemed domicile in the UK, from funds that arose in an earlier year when they claimed the remittance basis are still taxable in the year they are remitted to the UK.

The new deemed domicile legislation at section 835BA (chapter 2 of part 14 of ITA 2007) does not apply if taxpayers have used the remittance basis under the provisions of section 809D ITA 2007.

However, they must ensure that unremitted foreign income and gains are under £2,000 for the relevant tax year before deciding if they are not deemed domicile in the UK for income tax and capital gains tax.

HMRC provides a number of examples in the guidance as illustration, and also points out that someone who becomes deemed domiciled and subject to UK tax on their foreign income or gains may be able to claim the dividend and personal savings allowances.

The changes to the deemed domicile rules also have a bearing on the cleansing conditions for mixed fund accounts.

From 6 April 2017 to cleanse mixed fund accounts taxpayers must nominate the transfer, which must be made between 6 April 2017 and 5 April 2019 and meet a number of conditions. These include being a qualifying individual at the time of the transfer and being able to identify the source of the funds.

There is no need to cleanse all overseas mixed fund accounts at the same time, as long as each account is cleansed within the two year window, ending 5 April 2019. Nor is it necessary to completely empty the original mixed fund account, but once a nominated transfer from an account has happened it cannot be nominated again into that same account.

If nominated transfers exceed the amount of that kind of income held in the mixed fund account immediately before the transfer then the normal mixed fund rules will apply. Such a nomination would be invalid and would have the potential to affect all subsequent nominations possibly invalidating them too.

If taxpayers cannot identify the make-up of the transfer, because they do not have enough evidence of what is in the other account, then the transfer will be treated as income.

Guidance for deemed domicile rules is here.

Guidance for remittance basis changes is here.

Guidance for cleansing mixed funds is here.

Report by Pat Sweet