Non-domiciled individuals

Non-Domiciled Individuals and UK Taxation

At AHACCOUNTANTS, we provide an overview of the taxation of income arising outside the UK for non-UK domiciled individuals. If you reside in the Nottingham area, we can offer tailored advice on the implications of this legislation and assist with any tax-related issues.

Overview of Non-Domiciled Status

An individual residing in the UK but not domiciled there (referred to as a “non-dom”) has the option to be taxed on the remittance basis concerning income and capital gains generated outside the UK. This means they are only taxed on the income and gains they actually bring into the UK during the tax year, rather than on the total income or gains earned.

Key Points:

• Non-doms must carefully assess their UK tax position and plan their overseas income and capital gains accordingly.
• Understanding the concept of domicile is crucial, as it influences tax liability.

Domicile Explained

There is no formal definition of domicile in UK tax legislation, but it generally refers to the following types:

1. Domicile of Origin: Typically acquired from the father at birth (or mother if parents were unmarried).
2. Domicile of Choice: Acquired when a person permanently settles in a new country and severes ties with their original domicile.
3. Domicile of Dependency: Applies to individuals under 16, dependent on a person who has acquired a new domicile.

Claiming the Remittance Basis

Non-doms are initially subject to taxation on an arising basis for their overseas income and gains, just like UK-domiciled individuals. However, they can choose to claim the remittance basis. Important considerations include:

• Loss of Allowances: Claiming the remittance basis means forfeiting personal tax allowances and annual capital gains tax exemptions, affecting overall tax liability.
• Exceptions for Remittances: If a non-dom brings in all but £2,000 of their overseas income/gains in a tax year, they can benefit from the remittance basis without making a claim.

Example:

• Jan is domiciled in Poland and has £5,000 in rental income from Poland:
  • Scenario 1: If he remits £1,000 to the UK, he can pay tax on the full £5,000 as it arises and retain his allowances. Claiming the remittance basis would mean paying tax only on £1,000 but losing his allowances.
  • Scenario 2: If he remits £3,000, he can pay tax only on that amount and retain his personal allowance.

Long-Term Residents

Individuals classified as long-term residents—those who have been UK residents for at least seven out of the previous nine tax years—face different rules when claiming the remittance basis.

• They must pay an additional remittance basis charge (RBC) of £30,000 to benefit from the remittance basis.

Example:

• Sanjay, who has been continuously resident in the UK since 2017, is a long-term resident in 2024/25. If he has overseas income of £6,000, he must pay the RBC to claim the remittance basis. If he opts not to pay the charge, he will be taxed on the full amount.

Higher RBC Charges

For individuals resident in the UK for 12 out of the last 14 years, a higher RBC of £60,000 applies.

Example:

• Sergio, a higher-rate taxpayer, has £150,000 in income from Spain and a £500,000 capital gain. If he claims the remittance basis with a higher RBC, he must nominate income or gains to represent this charge.

Deemed Domicile

Since the 2017/18 tax year, some non-doms are deemed to be UK domiciled if:

• They were born in the UK with a UK domicile of origin but changed their domicile (Condition A).
• They have been UK resident for at least 15 of the last 20 years (Condition B).

Example:

• Cesar, a non-UK domicile, was a resident in the UK for 16 years and is deemed UK domiciled for the 2019/20 tax year and onwards.

Understanding Remittances

HMRC views any method used to bring income or gains into the UK as a remittance. Key points include:

• Relevant Person: A remittance may benefit various individuals connected to the taxpayer, including spouses, children, and trusts.
• Conditions for Remittance: For a remittance to occur, property or funds must be brought into the UK for a relevant person’s benefit, and the funds must derive from overseas income/gains.

Example:

• Alex, a wealthy Canadian, uses income from a bank deposit in Jersey in various ways, such as purchasing a car in Germany or sending his wife on a spa trip, all of which would constitute a remittance.

Relief for Business Investment

Non-doms who remit funds to the UK for investment in qualifying businesses may find the remittance basis more attractive. Key elements include:

• The investment must be in shares or loans to a trading company or related companies.
• The non-dom (or any relevant person) must not receive benefits directly or indirectly from the investment.
• Upon realizing the investment, the non-dom has 45 days to reinvest in another qualifying company or remove the funds, or they will be treated as a remittance.

UK Residential Property

All UK residential property is subject to inheritance tax (IHT) if owned by UK or non-UK domiciled individuals. From the 2017/18 tax year, all residential properties in the UK held within overseas structures are also subject to IHT, irrespective of whether held by individuals or trusts.

Conclusion

Understanding the tax implications for non-domiciled individuals in the UK is crucial, especially for those with overseas income and capital gains. If you require assistance navigating these complex regulations or have specific queries about your tax situation, contact AHACCOUNTANTS for professional advice tailored to your needs.