What is non-domicile status?
Every individual has a domicile and can only have one domicile at any given time. It is where they consider their permanent home to be, and it is distinct from nationality and residency.
An individual’s domicile at birth will depend on the parents and, ordinarily, the child inherits the domicile of their father. However, this can change through actively severing ties with the current country in which they are domiciled.
The UK’s tax rules for non-UK domiciled individuals have long been part of the tax system and use the concept of domicile as part of the remittance basis rules. They allow UK resident non-UK domiciled individuals to claim to be taxed on the remittance basis of taxation subject to meeting certain conditions. This means that their foreign income and/or gains are not taxable in the UK unless the monies are remitted (brought into) here. This could be the following year, or in 50 years (subject to particular circumstances), it still becomes taxable in the UK when it is remitted under remittance basis taxation.
One common pitfall is keeping track of foreign income and gains that have been subject to the remittance basis claim. The funds can become mixed in overseas accounts, assets, property, etc., which can be difficult to unpick later down the line.
It is recommended that you seek advice where a claim for the remittance basis is made to ensure that overseas assets are structured to facilitate the ability to effectively claim the remittance basis and bring funds to the UK in a tax-efficient manner.
A second pitfall is understanding what constitutes a remittance. A remittance can arise through scenarios such as a bank transfer and the payment of a credit card bill or the settlement of a debt, to name a few.
Whilst there is no formal charge initially to claiming the remittance basis, an individual is liable to an annual charge of £30,000 if they have been a UK resident for more than seven years out of the past nine years, increasing to £60,000 if they have been a UK resident for more than 12 years out of the past 14. These annual charges apply when a claim for the remittance basis is made.
The recent overhaul of the non-domiciliary rules has certainly impacted the position of those who use the remittance basis. Once an individual has been a UK resident for 15 or more years out of 20, they will now be considered UK domiciled for tax purposes. This means that they can no longer pay the remittance basis charge meaning that their worldwide income and gains will be subject to UK taxation.
In addition, their worldwide assets will also be liable to UK inheritance tax.
Individuals nearing the 15-year mark should seek advice before becoming actual or deemed domiciled in the UK to protect some of their wealth. This may include restructuring their holdings of non-UK assets for the longer term and assessing their future cash needs in the UK.
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If you require advice or support with your non-domiciled status and your assets overseas, please do not hesitate to get in touch.
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Whether you’d like to ensure your assets are managed in a tax-efficient manner, protect your estate for future generations, manage your global tax affairs or simply ensure you are operating within the rules of your current place of residence, anything is possible with the right support.
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For those with interests in multiple jurisdictions, different international obligations, regulations and procedures can be daunting. Tax-efficient investments or vehicles and structures such as Trusts are often not recognised in other countries. Similarly, while it might be advisable to structure your affairs in a certain way for UK tax purposes, this could cause unforeseen problems in other jurisdictions.