Jessica Jarvis

The UK tax landscape for non-UK domiciled individuals has long been complex – but in 2024 and 2025, HMRC’s scrutiny of non-UK trusts and deemed domiciles has reached new heights. For trustees, professional advisers, and UHNW families, the stakes are higher than ever. With political momentum building towards sweeping reform of the non-dom regime, proactive planning and rigorous governance are no longer optional.

This article explores how HMRC’s approach to deemed domicile is evolving, what this means for non-UK trust structures, and the steps trustees must take to future-proof their arrangements.

Deemed Domicile in a Nutshell

Under current UK tax rules, an individual who is not UK domiciled under general law can become deemed domiciled for tax purposes. There are two principal ways this happens:

• Condition A: They have been UK resident for at least 15 of the previous 20 tax years.
• Condition B: They were born in the UK with a UK domicile of origin and are now UK tax resident (formerly known as a returning UK domiciliary).

Once deemed domiciled, individuals:

• Lose access to the remittance basis for foreign income and gains.
• Are subject to UK Inheritance Tax (IHT) on their worldwide estate.
• Face potential UK taxation of foreign income/gains in offshore trusts, unless careful planning is in place.

Heightened Scrutiny in 2024-2025

HMRC has significantly ramped up its focus on non-UK domiciled individuals, particularly those approaching or already within the deemed domicile net. Several developments have sharpened HMRC’s enforcement toolkit:

1. Data Sharing and Transparency

• The Common Reporting Standard (CRS) and FATCA mean HMRC has visibility over offshore bank accounts, trust structures, and financial assets.
• Cross-border information sharing has made it much harder to keep structures off HMRC’s radar.

2. Compliance Focus on Trust Structures

• HMRC is reviewing the administration of offshore trusts, especially those linked to UK resident or deemed domiciled settlors or beneficiaries.
• There is close attention on whether trustees are properly applying UK tax rules when making distributions to UK residents.

3. Challenge of Remittance Planning

• Distributions from offshore trusts are being scrutinised for disguised remittances.
• Where UK resident beneficiaries receive benefits or capital payments, HMRC is challenging the tax treatment, particularly when distributions are funded from untaxed foreign income or gains.

4. Enforcement and Enquiry Activity

• HMRC’s Connect data analytics system flags high-risk taxpayers, including those using complex offshore structures.
• Trustees and families are receiving more nudge letters, enquiry notices, and compliance checks.

What Trustees Need to Do Now

With increased attention from HMRC, trustees of non-UK trusts need to review their structures, governance, and compliance processes to minimise risk. Here’s how:

1. Review Beneficiaries’ Statuses

• Confirm whether any beneficiaries are deemed domiciled or close to becoming so.
• Document residency and domicile status annually.
• Be aware of Condition B returners – who are often caught unawares by deemed domicile rules.

2. Revisit Distribution Strategies

• Carefully analyse the UK tax consequences before making any capital distributions to UK-resident or deemed domiciled beneficiaries.
• Consider whether benefit rules or matching rules may trigger tax charges.
• Maintain clear trust accounting records, separating capital, income, and gains.

3. Governance and Economic Substance

• Ensure the trust demonstrates robust governance and complies with economic substance requirements where applicable.
• Hold trustee meetings offshore, and document decision-making processes to defend against management/control challenges.
• Appoint professional directors where necessary to strengthen offshore governance.

4. Engage Professional Advice

• Trustees should work closely with UK tax advisers who understand the complexities of offshore trust taxation.
• Regularly review structures in light of ongoing legislative changes and HMRC practice.
• Seek advanced clearances or rulings from HMRC when appropriate.

On the Horizon

Both the Labour and Conservative parties have signalled potential reform or abolition of the non-dom regime. If the remittance basis is scrapped in favour of a residence-based regime:

• Existing offshore trust protections may be lost.
• UK tax exposure for offshore income and gains could increase substantially.
• There may be new IHT rules applicable to offshore trusts and their assets.

Prudent trustees should anticipate change and future-proof their structures now, rather than waiting for reforms to be implemented.

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HMRC’s intensified focus on deemed domiciled individuals and offshore trusts means trustees must be more vigilant than ever. Strong governance, clear beneficiary status reviews, and proactive UK tax advice are critical to managing risk.

By staying ahead of the curve, trustees can protect their structures, fulfil their fiduciary duties, and safeguard family wealth for future generations.