INTM603220 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017: When an individual becomes deemed domiciled

The changes introduced in paragraphs 27 to 38 of Part 2, Schedule 8 of Finance (No. 2) Act 2017 only apply to:

  • non-resident trusts settled by non-UK domiciled individuals, or to
  • trusts established by non-domiciled long-term UK residents who have become UK deemed domiciled by virtue of their long-term residence.

It is therefore important to understand the different categories under which an individual can become UK deemed domiciled as the changes will not apply to all individuals who are UK deemed domiciled.

ITA07/S835BA sets out the conditions under which an individual will be treated as UK deemed domiciled for the purposes of the Income Tax Acts or the Capital Gains Tax Act. For an individual to be treated as UK deemed domiciled, the individual must not be UK domiciled at any time in the relevant tax year under consideration and they must meet Condition A or Condition B.

Condition A

Condition A is that:

  • the individual was born in the UK,
  • the individual’s domicile of origin was the UK, and
  • the individual is UK resident for the relevant tax year.

Condition B

Condition B is that the individual has been UK resident for at least 15 of the 20 tax years immediately preceding the relevant tax year.

Condition B is not met if:

  • the individual is not UK resident for the relevant tax year, and
  • there is no tax year beginning after 5 April 2017 and preceding the relevant tax year when the individual was UK resident.

The changes made to the application of the transfer of assets abroad provisions to settlors of non-resident trusts who are not UK domiciled or who are UK deemed domiciled only apply to individuals who are UK deemed domiciled under Condition B above, i.e. individuals who have been UK resident for at least 15 of the previous 20 tax years.

For those settlors of non-resident trusts who are UK deemed domiciled under Condition A, the changes will not apply. Such individuals will be assessable to income tax under ITA07/S720 or ITA07/S727 on the income of the trust and its underlying entities as the income arises.