Un-Tainting Protected Settlements – A Cure When Prevention Fails?

Important changes were made to the UK's deemed domicile regime in 2017. These complex new rules pose yet another set of challenges for offshore trustees of trusts with UK resident, deemed UK domicile settlors. While most hope to avoid the new tainting regime for so called 'protected settlements', given the ease with which a trust can be tainted, and the potentially calamitous tax consequences of a tainting event, this is an area of high risk for trustees.

The 2017 Changes

The Finance Bill (No.2) 2017 has narrowed the deemed domicile window from 17 to 15 out of 20 tax years of UK residence.  From 6 April 2017, non-doms who have been resident in the UK for at least 15 out of the last 20 years will be deemed UK domiciled for all UK tax purposes including IHT, income tax and CGT. This means that if the non-dom is a settlor of a trust, the trust's income and gains are attributed to the settlor on an arising basis (as would be the case with a naturally UK