No-brainer explainer on non-doms for UK citizens

Over the years, we’ve found that our clients never really enjoy talking about the legal beagle side of financial planning, but when we work in multiple territories and engage with generational wealth, it’s an area that we have to keep well-informed.

It may not be your cuppa tea, but if you want to know a little more (high-level) on domicile rules and find answers to some of the most common questions about them, we found a brilliant piece on tax.org.uk. Here are some brief clips from the article.

An individual is domiciled in the UK if they ‘belong’ in the UK and it is their home. Domicile is a general law concept transcending nationality, residence and ethnicity.

There is a further layer known as ‘deemed domicile’, which applies only to tax, not General Law, and is based upon how many years you are resident in the UK.

As such, domicile is not the same as residence for tax purposes. Briefly, residency is based on physical presence in the UK over the course of a tax year, whereas domicile is about someone’s long-term home.

Most other countries, likewise, pay little heed to an individual’s passport when considering the tax status of their residents. The USA is the most obvious exception, whereby US passport and Green Card holders are subject to US taxes on their worldwide income.

People who are both UK domiciled and UK resident are taxed in the UK on the ‘arising’ basis. This means they are taxed in the UK on their worldwide income and capital gains

If someone is a UK resident, but ‘non-dom’, then they can choose to be taxed on the ‘remittance’ basis for a number of years, meaning they are only taxed on foreign income and gains insofar as they are ‘remitted’ (i.e. brought into) the UK.

It is important to remember that it is not just income tax and capital gains tax which are affected by the domicile rules. The estates of UK-domiciled individuals are charged to UK inheritance tax on the worldwide assets held by that person just before they died.

If an individual is non-UK domiciled, the estate is set to UK inheritance tax only on UK assets. At least, that’s the basic rule.

We often remind our Northern Cross clients that the non-dom rules are explicit and contained within the statute, so being non-dom and paying tax on a remittance basis is nothing illicit or accidental.

Non-dom status cannot be called a loophole either – loopholes are opportunities for taxpayers, based on close reading of the legislation, that Parliament did not intend: there is no question that the general thrust of the rules around non-dom status was entirely meant to operate as they do.

The current domicile rules have been part of the UK tax system since 1914, so they are not new either.

There’s quite a bit more around this subject, but we hope we’ve helped you open a constructive and accessible conversation around this part of financial planning and tax legislation.

If you’d like to know more, please reach out and get in touch with me or anyone on our team.

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