The issue of non-domiciled status has hit the headlines recently, thanks to the UK chancellor Rishi Sunak and his wife, Akshata Murty. In this article, Joanne Wescott, a partner at Osbornes Law specialising in divorce, takes a closer look at what having 'non-dom' status actually means and what impact having this status will have, specifically in the context of family and divorce proceedings.
What is non-domiciled status
Claiming non-dom status means declaring to HMRC that your primary connection (usually your permanent home) is outside of the UK. Once non-domiciled, UK taxes are levelled on UK income in the usual manner, but the rules allow the individual to earn money abroad without paying UK taxes on it for up to 15 years.
This may come at a cost - anyone who has enjoyed non-dom status for more than 7 years will be required to pay an annual fee of at least £30,000.
It's important to know that having non-dom status is a choice for individuals who qualify, and not (as Murty has inferred) because of your citizenship. You can be a British citizen but if your main domicile is elsewhere, you can choose to be non-domiciled.
It's not hard to see how having non-dom status is attractive for High-Net-Worth individuals. It's about the money and minimising your tax liability. Murty's non-dom status benefitted her because India's tax rules are far more generous than the UK's.
What if one party is a non-domiciled in divorce?
Divorce cases are more challenging where one spouse (or both) is non-UK domiciled given the complexity of the rules.
To be able to take advantage of the new no fault divorce regime here, one party must be either habitually resident or domiciled in England and Wales to issue. If this is satisfied, then divorce and consequential financial proceedings can be issued here.
Property and other matrimonial assets held abroad form part of negotiations for a financial settlement and must, therefore, be disclosed. Both parties are required to make full and frank disclosure of all their property and assets, wherever they are located as well as all their sources of income even if earnt abroad.
In situations where it is suspected the other side is failing to disclose assets in a transparent manner, Joanne Wescott explains that in some cases her firm will instruct tracing agents to ascertain undisclosed assets and where necessary, we will ask the court to make a range of orders to assist with this. Wescott comments that 'it is important to take a forensic approach to all the assets and to the needs of our clients to ensure a financial settlement is transparent and fair".
Previous court rulings make clear that if there is evidence pointing to a party attempting to conceal assets, the court will not hesitate to make an order. Non-compliance is treated seriously and could put them in contempt of court and even risk a jail sentence.
If disclosure on assets abroad is not forthcoming then the court can draw inferences and make a larger award from UK based assets, over which it has jurisdiction.
If one party is trying to dispose of assets here or abroad to intentionally defeat the claim of their spouse, then we can apply for a freezing injunction to prevent the sale or transfer to a third party and in cases where the assets being disposed of are abroad you can apply for a worldwide freezing order. An example of this is in the case of Akhmedova, where a superyacht worth over £300 million was impounded in Dubia because of the High Court granting a Freezing Order in favour of the wife.
The specialist family team at Osbornes Law represent clients in London and internationally on financial matters and divorce. The firm is ranked as leading law firm in London, with a particular focus on HNW clients.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.