23 March 2018
Much has been written of the 'new' 15 out of 20 year rule of UK deemed domicile. Long term residents of the UK who satisfy the 15 out of 20 year rule will, from 6 April 2017, become taxable on a worldwide basis to UK income tax, capital gains tax and inheritance tax.
Action can be taken prior to becoming deemed domiciled to protect the taxation of non-UK assets through the use of trusts; but those who otherwise plan to avoid worldwide taxation on non-UK assets by becoming non-resident before year 16 face a nasty shock – that actually they have passed the point of no return and WILL be exposed to UK inheritance tax on their worldwide assets for FOUR tax years AFTER they have ceased UK tax residence.
This is because the new rule applies to those who have been tax resident in 15 of the PRIOR 20 tax years and does not require tax residence in the UK in the 16th year. Only UK residents are (generally) subject to income tax and capital gains tax in the UK, so those who cease UK tax residence will successfully avoid UK tax in relation to non-UK source income and also UK tax on capital gains (other than gains realised on the disposal of UK residential real estate). UK inheritance tax, however, does not require residence in the UK.
Those for whom 2017/18 is the 14th (or lower) year of tax residence have an opportunity to avoid their non-UK assets becoming exposed to UK inheritance tax by ceasing UK tax residence BEFORE crossing the threshold of tax residence in tax year 15.