Non-domiciled individuals

Greater IHT planning is available if you are a non-domiciled individual, as well as for capital gains and income tax planning. Such individuals are only subject to UK IHT on their UK sited assets (so long as they are not deemed domiciled in the UK, see below). Excluded property, primarily non-UK sited assets held by non-domiciled individuals, is not within the scope of UK IHT.

The situation does change, however, when you become deemed domiciled for IHT purposes. This is currently the case of you have been UK tax resident in any part of 17 of the past 20 tax years. This can be as little as just over 15 calendar years. In this case, you are deemed UK domiciled for IHT and thus subject to IHT on your worldwide assets.

These rules are changing from 6 April 2017, when an individual will be deemed UK domiciled for IHT, once they have been UK resident in 15 out of the previous 20 tax years. Non-UK assets held by a trust set up by a non-UK domiciled, non-deemed domiciled individual retain their excluded property status assuming no further property is added to the trust once the individual becomes deemed domiciled. It is advisable that you plan in advance for this change in your domicile status and consider the use of offshore trusts to protect your assets against IHT in the UK. That said, this is a complex area of taxation and advice should be sought before undertaking any planning.

In addition to the change in the deemed domicile rules, further changes are being introduced from 6 April 2017 in respect of UK residential property. At the moment, if a non-UK domiciled and non-deemed domiciled individual, or excluded property trust, holds UK residential property indirectly through a non-UK structure (such as a non-UK company), they are not considered to be holding a UK asset for UK IHT purposes. However, from 6 April 2017 such structures will be look through for the purposes of charging UK IHT on UK residential property.