Non Domicile Status To Be Scrapped in Budget?

The Spring Budget is next week on 6^th March 2024 and rumours are flying around that the tax privileges on non-UK domicile status will be scrapped.

Famously, Prime Minister Rishi Sunak’s wife, Akshata Murty, was claiming non-UK domicile status meaning her £11.5m pa dividend income from her stake in her father’s Indian IT services company Infosys, paid a simple Remittance Bais Tax Charge of just £50,000 pa in the UK despite her being tax resident here as the income was not remitted i.e., brought into the UK.  In 2022, after a public outcry and as the wife of the UK’s Prime Minister, she reverted to be classed as a UK domicile to then pay taxes on her worldwide income and gains.

Now you know why so many film stars, musicians and the super wealthy football club owners choose to make the UK home temporarily.

What is Domicile?

It does not mean your property.  Domicile under UK law means your ‘homeland’, i.e., where you originate from.

Domicile of Origin – your acquire your domicile of origin from your father at birth.  If there is no father named on your birth certificate, you acquire your domicile of origin from your mother.

Domicile of Dependence – you are below age 16 years, you have a domicile of dependence based upon the domicile of your legal guardian (usually your parent), if the domicile of the legal guardian changes, then so does the child’s.  At age 16 your then take on your own Domicile of Origin.

Domicile of Choice –  this is where your domicile status can be changed.

• If you are originally UK domiciled, you can change your domicile by moving elsewhere permanently must be able to demonstrate you now consider yourself domiciled in that new country and intend to stay there for the rest of your life.  You must also sever all ties with the UK (not your passport) but financial ties e.g., you cannot own a property that you come back to live in temporarily.  If you do not prove this or if you subsequently leave that country, under UK law, your automatically revert to your UK domicile of origin again.
• If you are originally non-UK domicile but move to the UK and live here for 7 of the last 9 years you are deemed fully resident in the UK for income tax and capital gains purposes and therefore subject to tax in the UK on your worldwide income.  This is not the case for inheritance taxes where you will pay UK inheritance tax (IHT) on worldwide assets if you have lived in the UK for 17 of the last 20 years otherwise it is IHT on UK assets only.

For more on Foreign Domiciles in UK see:  Foreign Domicile in UK

Comment

As you may have guessed, non-UK domicile status is designed to attract wealthy individuals to the UK in the same way that some countries have ‘golden visas’ and other countries have special tax free periods when you move there such as the Beckham Law (in Spain) when David Beckham signed for Real Madrid and a similar scheme in Portugal with the Non-Habitual Resident (NHR) tax regime in Portugal, where you only pay 20% income tax on local income and no tax on overseas income for up to 10 years.

That said, we suggest it is not fair and is quite unpopular in the UK that some wealthy non-UK nationals can end up paying lower taxes in the UK than UK Nationals and it is perhaps not as valuable anymore to attract foreign wealth when many countries are now starting to become more protectionist and insular.

By scrapping non-Domicile status in the UK, we cannot see it making any major difference economically or is it ‘sour grapes’ from Mr Sunak?