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UK non-dom rules

UK Remittance Basis of Taxation: UK resident but not UK domiciled

The United Kingdom offers an attractive tax regime for those individuals who are resident in the UK but do not have UK domicile, such individuals are often referred to as ‘resident non-doms’. 

An individual who fulfils the criteria, and who has foreign income and/or foreign capital gains, can elect to be taxed in the UK on the advantageous remittance basis of taxation. Under this scheme the individual can elect to pay a fixed annual charge, currently £30,000 or £50,000, known as the remittance basis charge.

Domicile is a complex concept under UK tax law that is distinct from residence: an individual can be UK non-resident but still have UK domicile, and there are various types of domicile. Generally, a father will pass his UK domicile to his child, even if the child is born outside of the UK.

The amount to be paid under the remittance basis charge depends on the length of residence in the UK by the non-dom. In summary:

If the individual has been UK resident for at least 7 years of the last 9 years they would qualify for the £30,000 remittance basis charge; but

An individual who has been UK resident for at least 12 years of the last 14 years the £50,000 remittance basis charge will apply.

When the individual meets the 12 year residence test they will then be obliged to decide each year whether they wish to continue to claim the remittance basis of taxation or to taxed on their worldwide income and gains.

Under the remittance system UK source income and capital gains, if any, are subject to the usual UK taxation, in addition to the annual remittance charge.

In summary, an individual who is UK resident, but non-domiciled, will not be subject to UK tax on their worldwide foreign income and gains as long as those sums remain outside the UK; if they are remitted to the UK there will then be a UK tax charge. However, if the foreign income and capital gains are remitted by the individual to the UK, the remittance might qualify for business investment relief if certain criteria are met when the investment is made and on the disposal of that investment.

Whether an individual is resident in the UK is determined by reference to the Statutory Residence Test. Under this test residence is determined by reference to the time spent in the UK, accommodation in the UK and connection with the UK.

In the first Budget Statement since the general election in 2015, the UK Chancellor, George Osborne, announced a number of changes to UK the UK’s non-doms rules, as well as changes to inheritance tax, the taxation of dividends and further reductions to the level of corporation tax. For more information on this subject see the following news item: http://www.rosemont-int.com/news/15-07-2015-uk-summer-budget-statement-changes-for-non-doms/

The draft legislation introducing the deemed domicile concept for income tax and capital gains tax was published on 2 February 2016. 

Under the proposed legislation non-UK domiciliaries (non-doms) will be deemed UK-domiciled for income tax and Capital Gains Tax when they have been resident in the UK for 15 out of the previous 20 years. This mirrors the new inheritance tax deemed domicile rules.