Non-domicile reforms - The final chapter


HM Revenue & Customs ("HMRC") have published their long awaited guidance on the non-domicile reforms. The guidance brings a close to the journey for non-domiciled individuals, which started on 8 July 2015 and had a number of unexpected and frustrating turns along the way.

The most eagerly awaited component of HMRC's published guidance is in relation to the 'cleansing' provision, and in particular its practical operation. The 'cleansing' provision is the mechanism allowing non-domiciled individuals to re-arrange historic mixed funds, subsequently allowing monies to be remitted to the UK more efficiently. The 'cleansing' provision is only available until 5 April 2019.


The actual legislation regarding the 'cleansing' provision provided very little insight on how the process should be practically undertaken, and specifically what accounts and supporting documentation are required. HM Treasury had previously indicated that the legislation was purposely drafted in this way and that HMRC would subsequently provide their guidance to support the legislation. With that uncertainty, the advice was to not take any specific action and make any transfers until HMRC had confirmed in their guidance the exact process.


With HMRC's guidance now finally available, non-domiciled individuals wanting to apply the 'cleansing' provision can do so with greater certainty. HMRC's guidance sets out the key conditions, the process of nominating accounts to effectively 'cleanse' overseas monies and worked examples. 


In their guidance, HMRC make it clear that a non-domiciled individual wanting to apply the 'cleansing' provision 'must be able to identify the source of funds' meaning that overseas bank accounts will need to be analysed. With only a little over a year before the 'cleansing' opportunity ends, it does not leave a significant amount of time to gather the relevant information, produce calculations and implement the necessary bank transfers. Therefore those non-domiciled individuals wanting to take advantage of the 'cleansing' provision should now proceed as soon as possible.


As well as the guidance on the 'cleansing' provision, HMRC have also published notes on the other non-domicile reforms, including the 'deemed domiciled' rule for non-domiciled individuals who have been resident in the UK for 15 out of the previous 20 tax years, the new rules concerning the protections for offshore trusts and changes to Business Investment Relief.


It has taken the Government and HMRC two and half years to reach this point, marking an end to one of the most complicated legislative processes to the UK's personal tax system.


If you have any queries, please contact Caroline Le Jeune.