Tax Benefits of Non UK Domicile Status
Published / Last Updated on 22/04/2022
Firstly, under UK law, your domicile is not the building or accommodation that you sleep in. Domicile is a tax status that is peculiar to English law. Many countries that have adopted the English common law approach also have domicile as a tax status.
There has been much in the news recently about people claiming non-UK domicile status and not paying anywhere near the taxes that many UK residents pay. Have you ever asked yourself why so many wealthy foreign nationals, sports people and ‘stars’ make the UK their home? It is to do with UK domicile rules.
Claiming non-UK domicile tax status is not a tax loophole, it is part of UK tax law, so no person claiming non-UK domicile status is breaking the law.
We already know, from our video ‘Residence v Domicile’, the difference between being UK tax resident and UK tax domiciled. Watch Res v Dom
Domicile is your permanent home; it is your homeland. You acquire your ‘domicile of origin’ from your father (if married) or your mother (if parents were not married). Being UK domiciled means you are subject to UK income tax, capital gains tax and inheritance tax on your worldwide income and assets. By being non-UK domiciled, e.g., born overseas to a foreign father and then moving to UK, you are only usually subject to UK taxes on income, gains and wealth in the UK only as you are non-UK domicile for a period of time until eventually your will be deemed ‘domicile of choice’ UK and your worldwide income and assets become subject to UK taxation.
Non-Domicile Taxes
Usually, your income and gains from outside the UK is not subject to UK taxes provided it is not brought into the UK (remitted). There are set rules though on what is taxed and what is not under non-domicile rules:
Foreign income and gains below £2,000 pa in the tax year is not taxable.
If foreign income and gains exceeds £2,000 pa, there are two choices:
- Declare in full for taxes in UK
- Remittance basis: Pay tax on income and gains brought into the UK but pay no tax on income and gains not remitted into UK subject to the following annual tax charge:
- Lived in UK for 7 of the last 9 years = pay £30,000 pa tax charge but all foreign income and gains remain not taxable in UK
- Lived in UK for 12 of the last 14 years = pay £60,000 pa tax charge but all foreign income and gains remain not taxable in UK
Clearly, for some wealthier individuals, it may be beneficial to declare as a remittance basis user and pay an annual tax charge of £30,000 or £60,000 rather than paying much higher levels of taxes of worldwide foreign income and gains.
Tax Treaties
The use of domicile and remittance basis users is subject to both UK and international rules and tax treaties in the country that you are domiciled. For example, India is subject to ‘prior’ tax rights i.e., it can tax assets before the UK does and within the tax treaty, this may mean depending upon your domicile, you pay no taxes on foreign income or gains in UK or in your domicile of origin country.
