Non-domiciled status (non-dom) explained

There has been an increased focus recently on what constitutes resident non-domiciled status (non-dom) and who this applies to, alongside what UK taxes a non-dom person would pay. Below we explain the issues surrounding this and what it means to be non-domiciled in the UK.

What is resident non-domiciled status?

UK residents whose place of birth is outside the UK and their permanent home is outside of the UK, may not have to pay tax in the UK on their foreign income.

They also may not need to pay tax in the UK on any foreign capital gains that they make, such as the sale of an overseas second home or the sale of shares outside of the UK.

However, UK citizens born in the UK, cannot simply purchase an overseas home and elect this to be their main residence to be non-domiciled for UK tax purposes, a more complex criteria would apply

What is the difference between domicile and residency?

In simple terms, residency is where you live or reside and domicile is where you are from, typically your place of birth. tax residency, however, this can be much more complex.

How do you work out your domicile status (or non-domicile status)?

A person’s domicile is usually the country your father considered his permanent home at the time of your birth. This may have changed in circumstances where you have moved overseas and you do not intend to return to this country.

Guidance is available within chapter five of HMRC’s ‘Residence, Domicile and the Remittance Basis’ guidance. Our team of personal tax advisors at Alexander & Co can also assist.

What tax do you pay in the UK in you are non-domiciled?

UK tax on foreign income or gains is not paid if both the following circumstances apply:

  • In a tax year, the income or gains are less than £2,000
  • If income or gains are brought into the UK, such as transferring funds into a UK bank account

There are specific rules regarding bringing income or gains into the UK, laid out by HMRC. These can be complex to navigate.

UK tax for non-domiciled if income is over £2,000

Any foreign income or gains of at least £2,000 or any money brought into the UK must be declared in a Self Assessment Tax Return. There are then two options available to non-domiciled individuals, either to pay UK tax on this (which may be able to be claimed back) or to claim what is known as the remittance basis.

What is the Remittance Basis?

The remittance basis would mean UK tax is only paid on income or gains non-domiciled individuals bring to the UK, subject to the following conditions:

  • Tax-free allowances for Income Tax and Capital Gains Tax would be lost (although certain ‘dual residents’ may be able to keep these)
  • An annual charge will need to be paid if an individual has been a resident of the UK for a certain amount of time

What is the annual charge under the remittance basis?

The annual charge is either £30,000 for non-dom residents who have been in the UK for at least seven of the previous nine tax years or £60,000 for those who have been in the UK for a minimum of 12 of the previous 14 tax years.

Understanding and claiming the remittance basis can be complicated, however, our personal tax team is able to assist clients with this.

UK statutory residence test (SRT)

Introduced at the start of the 2013/14 tax year, the statutory residence test is a complex set of rules used to determine an individual’s tax residence. The test sets out what makes a person a UK resident for tax purposes.

In determining residence status for the purposes of defining your tax liabilities before the 2013/14 tax year, the test cannot be used. In these instances, guidance on the Remittance Basis should be referred to.

Special rules that apply to other circumstances

If you work both in the UK and overseas, special rules apply. There are also specific rules as to when Overseas Workday Relief can be claimed if you are sent to work in the UK by your employer on a secondment.

Special rules also apply to those who come to the UK to study.

Expert advice on the resident non-domiciled status

Alexander and Co assist a wide range of clients worldwide with regard to non-domicile issues in the UK. Our private client tax team can assess individual’s tax status, advise on what is required to be deemed non-resident and prepare detailed residency reports, including applying the rule of the statutory residence test, which can be complex.

To speak with one of our private client tax team on any international tax matters as they apply to UK tax, please email phone 0161 832 4841 or complete the contact form below.

Further reading

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