If you are UK tax resident but not domiciled in the UK, special rules apply to determine the basis upon which you pay UK tax.
In this guide, we explain the rules on non doms and UK tax obligations.
Domicile
Your domicile is usually the country in which you officially have your permanent home, whereby you can be domiciled in a different country from the country in which you are ordinarily resident.
Domicile is therefore not necessarily where you are living right now, but typically the place in which you have the closest ties or connections.
This may be your domicile of origin, ie; where your father considered his permanent home when you were born, although your domicile may have changed if you subsequently moved abroad.
You can also acquire a domicile of choice if you have resided in another country with the intention of staying there permanently.
There is no statutory definition of domicile, rather, your domicile status will be determined with reference to common law principles and case law.
In circumstances where your practical or financial affairs are especially complex, your domicile status may be hard to determine, exposing it to the scrutiny of HMRC. That said, in the UK, only a court can make a formal ruling as to domicile.
Residence status
Your tax residence is determined through a test that looks at the number of days you spend in the UK.
In general, if you are in the UK for 183 days or more in any tax year, you are deemed to be UK resident. However, it is also possible for people who spend less than 183 days a year in the UK to also be classed as tax resident on the basis of other connecting factors, such as having property or family in the UK.
Arising & remittance basis taxation
If you are classed as UK resident and are domiciled (or deemed domiciled) here, you are liable to tax on the ‘arising basis’. This means that all your worldwide income and chargeable gains will be taxable in the UK.
However, non-domiciled UK residents have the choice to be subject to either the arising basis or ‘remittance’ based taxation.
Under the remittance basis, whilst any income and capital gains arising in the UK will remain taxable in full for the tax year in which they arise, you will only pay UK tax on any foreign income or gains to the extent that these are brought, or remitted, to the UK, to help prevent double taxation.
By claiming the remittance basis, you have to file a self-assessment tax return and you will lose any available personal tax allowances and exemptions for your foreign income and gains. The effect is that you are liable to pay UK tax on all your other taxable income, without any entitlement to tax-free allowance.
If you are a long-term resident in the UK, you will also have to pay a remittance basis charge for each year you use the remittance basis of taxation.
There are two levels of remittance basis charge, depending on your period of UK residence:
- £30,000 for non-doms who have been resident in the UK for at least 7 of the previous 9 tax years immediately before the relevant tax year.
- £60,000 for non-doms who have been resident in the UK for at least 12 of the previous 14 tax years immediately before the relevant tax year.
In certain limited circumstances, you may be exempt from losing your personal tax allowance or annual exemption on gains while claiming the remittance basis or from paying the remittance basis charge while using the remittance basis. Take professional advice on the options available to you.
Deemed domicile rules
Up until 5 April 2017 all UK residents whose permanent home or ‘domicile‘ was abroad could elect to pay tax on any foreign income and gains on the remittance basis. However, on 6 April 2017 new deemed domicile rules came into force.
Under the current rules, if you aren’t domiciled in the UK under English common law you are classed as domiciled in the UK for all tax purposes if either Condition A or Condition B is met:
Condition A
To meet this condition you must:
- be born in the UK
- have the UK as your domicile of origin
- be resident in the UK for 2017 to 2018, or later years.
Condition B
- Condition B will be met when you have been UK resident for at least 15 of the 20 tax years immediately before the relevant tax year.
In circumstances where you meet the deemed domicile rules, the remittance basis of taxation will not be available to you, you will instead be assessed on your worldwide income and gains using the arising basis.
You will also be deemed UK domiciled for inheritance tax purposes.
Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert legal or other advice should be sought.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
