Intro
The United Kingdom has long been an attractive destination for individuals seeking opportunities for business, education, and a high standard of living.
Considering the cultural diversity, rich history, and growing economy of this country, it’s no wonder that so many people from all over the world turn to the UK.
One particular aspect that has caught the eye is the concept of non-domiciled status, a tax classification that offers significant advantages to individuals who meet certain criteria. In this article, you will explore what non-domiciled status means in the UK, its benefits, and the tax implications it has.
Understanding Non-Domiciled Status
Non-domiciled status, also known as non-dom, refers to a tax status accorded to individuals who are not considered to be domiciled in the UK for tax purposes.
The term “Domicile”, used in this context, refers to the country that an individual considers to be his or her permanent residence or to which he or she intends to return on a long-term basis.
In contrast to the “Residence”, which is determined by the number of days spent in the UK, the domicile is a more subjective concept based on long-term intentions and ties.
Qualifying for Non-Dom Status
As mentioned, a non-dom is a person who lives in the UK and is resident for tax purposes in the UK but is permanently resident outside the UK. This individual must prove to HMRC that his/her domicile, especially for tax purposes, is in another country.
Usually, his/her residence will be the country that his/her father considered as permanent residence when he/she was born, and to which this particular individual intends to eventually return, perhaps on retirement.
As a rule, a non-UK domiciled individual will not be a tax resident in the country where he/she is domiciled, and therefore will not be taxed in either country on his/her worldwide income.
A Non-dom must specifically claim tax relief on foreign income, which means there is no automatic designation for foreign-born residents or non-citizens.
What are the advantages of Non-Domiciled Status
One of the main advantages of non-domiciled status is the possibility to claim tax on remittances.
So under this system, individuals are only taxed on income and gains brought into the UK and not on worldwide income and earnings.
What does this mean? It means that individuals having a substantial income or assets outside the UK can only take advantage.
By keeping their foreign income and gains offshore, non-domiciled individuals can significantly reduce their UK tax liability.
Non-dom status also provides an inheritance tax exemption for foreign assets. As a reminder, inheritance tax is a tax imposed on the estate of a deceased person and can be a significant charge on individuals with substantial assets worldwide.
However, non-dom individuals can avoid paying inheritance tax on their foreign assets, providing an opportunity for efficient estate planning.
Taxation for Non-Domiciled Individuals
While non-domiciled status offers certain tax advantages, it is important to note that it also comes with certain requirements.
Non-domiciled individuals who have been resident in the UK for a certain number of years (currently 15 of the last 20 tax years) must pay an annual tax, known as the remittance tax, to maintain access to the remittance basis.
This fee can vary depending on the number of years of residence in the UK and can be between £30,000 and £90,000 per year. In addition, non-domiciled individuals who choose to bring foreign income or gains into the UK may be subject to specific rules and reporting requirements.
According to the UK relevant laws, if your foreign income is £2,000 or more, you must report it or any money that you bring to the UK, in a Self Assessment tax return.
In fact, you have two options:
- pay UK tax on this income – you may be able to claim it back
- claim the ‘remittance basis’- means you only pay UK tax on the income or gains you bring to the UK.
By choosing the second option, you lose tax-free allowances for Income Tax and Capital Gains Tax and you pay an annual charge if you’ve been a resident of the UK for a certain amount of time.
You pay an annual charge of either:
- £30,000 if you’ve been here for at least 7 of the previous 9 tax years
- £60,000 for at least 12 of the previous 14 tax years
Finally, it should be added that claiming the remittance basis is complicated. To get help you can contact HMRC or get professional tax help from a tax adviser.
Recent Changes
In recent times, changes have been made to the regulations on non-domiciled status in the UK.
In 2017, the government introduced new measures designed to increase the tax paid by non-domiciled individuals. These changes included the introduction of a deemed domicile regime, which treats long-term residents as deemed domiciled for all tax purposes after they have been resident in the UK for 15 of the last 20 tax years.
It means these individuals lose access to the remittance basis and are subject to tax on their worldwide income and gains. These amendments have been met with criticism from some, who argue that they could discourage wealthy individuals from making the UK their base of operations.
However, this is an absolutely normal process, as tax systems are continually evolving, as is legislation, regardless of the country. That is the truth!
Conclusion
Undoubtedly, non-domiciled status in the UK offers significant tax advantages for people who qualify.
Not to be overlooked, the opportunity to claim the remittance basis and avoid inheritance tax on foreign assets can lead to substantial tax savings.
However, non-domiciled status also comes with obligations, such as remittance basis tax and reporting requirements.
Recent amendments to the tax rules have increased the tax paid by non-domiciled individuals, which has sparked debate between supporters and critics.
Finally, keep in mind that comprehending the implications and complexities of non-domiciled status is vital for individuals considering this tax classification in the UK.
Should you wish to discover more about your possible qualification for non-dom status, do not hesitate to book a free consultation with our team now.
Feel free to contact us today for more information.