Non dom tax
Achieving favourable non dom tax treatment in the UK.
Non-UK domiciled individuals in the UK can enjoy advantages from a UK tax perspective.
Significant changes took effect from 6 April 2017 that reduced the ‘non dom’ tax advantages of being non-UK domiciled and the length of time those advantages could be obtained. However, being a ‘non dom’ still remains a highly beneficial tax status for many reasons.
The basic position is that non-UK domiciled individuals are only be subject to Inheritance Tax (“IHT”) on UK assets. From an income tax and Capital Gains Tax (“CGT”) position, under basic principles, they are only subject to tax on foreign income and gains if these are remitted to the UK.
This treatment is curtailed if they have been resident in the UK for 15 out of 20 tax years. At such time, they will be ‘deemed domiciled’ for all purposes under these new changes.
While restrictions apply for bringing overseas funds to the UK without a tax charge arising, effective non dom tax planning can be used to ensure remittances to the UK do not trigger a UK tax charge through structuring offshore investments and accounts to segregate income from capital.
Here to help
ETC have significant experience of advising non-UK domiciled individuals on all aspects of non dom tax.
Non-UK domiciled individuals that are resident in the UK are likely to have established non-UK structures as a vehicle for their assets. We are experienced in reviewing such structures and making sure they are fit for purpose.
We are also highly experienced in structuring offshore assets and bank accounts to maximise the benefit of non dom status and planning for tax-efficient remittance of funds to the UK.
We can offer support in respect of the completion of non dom tax returns with associated disclosures, advising on whether or not to claim the remittance basis in any given year, and making overseas workday relief claims.
We can assist on all aspects of the remittance basis to ensure you do not benefit from offshore assets in the UK, thus triggering a tax charge. We can advise on how to structure your offshore assets in the most tax efficient way, including offshore structures such as trusts, foundations, and other international entities.
As tax advisory specialists, we can also advise on all related taxation issues that may arise including IHT, excluded property trust planning and CGT.
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What is ‘domicile’?
Your domicile is the country which you consider to be your permanent home. It is a separate concept to nationality or residence. You can only have domicile at any one time, and you cannot be without a domicile. Your existing domicile will continue until you acquire a new one.
Domicile status is important for any individual who has income and capital gains arising outside the UK.
There are three types of domicile relevant to Income Tax and Capital Gains Tax:
- Domicile of origin,
- Domicile of choice and
- Domicile of dependence
What are the non dom tax advantages?
Inheritance tax (“IHT”)
The basic position is that individuals with non-domicile status are only liable to inheritance tax (IHT) on UK assets and as such may be able to benefit from IHT advantages. This position changes where the individual has been resident in the UK for 15 out of 20 tax years. Once he or she has been so resident, then they will be deemed domiciled for all tax purposes. This means that they will then be subject to IHT on their worldwide assets.
There are special rules for those born with a domicile of origin in the UK, moved overseas and then have returned to the UK. These are referred to as Returning Non-Doms or Formerly Domiciled Residents and are treated harshly under the new rules.
UK domiciled or deemed domiciled individuals are always liable to inheritance tax on worldwide assets, subject to allowances and exemptions.
IHT planning is valuable for non-doms, particularly where a non-dom approaches being deemed domiciled in the UK. Options could include locking-in inheritance protection through an excluded property trust (although the new rules mean this is no longer viable for UK residential property).
Other planning will also be relevant to a non-UK domiciled individuals.
Income tax and capital gains tax (“CGT”)
A non-dom, assuming he or she is resident in the UK, will always be subject to income tax on UK income and also subject to gains on UK assets.
However, to begin with, he or she may be able to take advantage of the remittance basis of tax on foreign income and gains. Initially this will be free of charge (until one is resident for 7 years in the UK) however thereafter they will have to pay the remittance basis of charge. Under new rules effective from 6 April 2017, after 15 years, they will no longer be able to be avail themselves of the remittance basis.
The remittance basis means that foreign income and gains are only subject to tax, broadly, if the funds are brought to the UK or are enjoyed in the UK by some other means.
What is a ‘remittance’?
Non-doms can potentially enjoy favourable tax treatment through the ‘remittance’ basis of taxation. This is claimed on a UK tax return.
‘Remitted’ refers to how foreign income or gains are brought to, used in or received in the UK.
Typically, taxation of a remittance relates to the source of funds.
An individual who is resident but not domiciled in the UK is subject to UK Income tax and Capital Gains Tax. But foreign income and capital gains are only applicable where the monies are ‘remitted’ to the UK.
For remittance to arise, property, money, or consideration for a service must be brought into the UK for the benefit of a relevant person. The funds for that property, money or consideration must be derived directly or indirectly from the overseas income and gains.
Non-doms are able to decide annually whether to claim on a remittance basis.
When can a taxable remittance arise?
Taxable remittance can arise where monies are physically brought to the UK from overseas, as well as many other circumstances including repaying a loan made in the UK; bringing to the UK assets which have been purchased overseas, paying for a service overseas provided in the UK.
We can advise on your specific non dom tax circumstances and whether these will be considered to fall under taxable remittance.
Do any charges apply for remittance?
Where certain criteria are met, charges do apply to the remittance basis of taxation.
It is free of charge to claim for the remittance basis until one has been resident in the UK for 7 out of the previous 9 tax years. After that an annual charge known as remittance basis charge applies.
For non-doms who have been resident in the UK in at least seven out of the last nine tax years, a £30,000 remittance basis charge is payable to access the remittance basis.
This charge increases to £60,000 for non doms who have been UK resident in some part of 12 or more of the last 14 tax years.
From 6 April 2017, non-doms who have been UK tax resident in at least 15 of the last 20 UK tax years will be treated as domiciled (“deemed domiciled”) in the UK. They will then no longer to able to claim the remittance basis.
Given the levels of these charges, the remittance basis may not necessarily be helpful for non-doms. However, the fact that one only has to claim the remittance basis only by 31 January following the relevant tax year means one has all the information on which to determine the cost v benefit of making such a claim.
It may be possible to structure investments so that income or gains are protected from UK without claiming the remittance basis. This is particularly relevant for those who are liable to the remittance basis charge, or approaching ‘deemed domicile’ status.
It may also be necessary to income and gains from offshore into the UK, often to buy a UK property or to fund other spending in the UK.
Careful planning is essential to ensure that a remittance of funds to the UK is as tax-efficient as possible.
Are there any exemptions and reliefs available on taxable remittances?
Taxable remittance in respect of non dom tax should not arise for a number of exempted items.
- personal items purchased outside the UK using overseas monies brought to the UK for personal use (e.g. jewelry, clothes);
- overseas monies used to invest in certain qualifying UK businesses, which may include an individual’s own company – known as Business Investment Relief (“BIR”);
- works of art purchased outside the UK using overseas monies brought to the UK and made available for public access;
- property purchased outside the UK using overseas monies brought to the UK with a value of less than £1,000; and
- overseas monies used to pay the annual £30,000/£60,000 remittance basis charge directly to HMRC.
Non dom tax related content
UK non dom tax – What should you be paying?
Despite the recent reforms to the taxation of UK resident non domiciliaries which took effect from 6 April 2017, there are still significant tax advantages for such individuals. So if you are a UK resident non dom, how much tax should you be paying in the UK?
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NON DOM TAX ADVICE
Essential information about non dom tax.
The tax advantages flowing from one’s non dom status are not an accident. They were clearly created specifically by Government.
But this is not tax avoidance territory.