Non-domiciled status has been high on the news agenda in recent weeks following the revelations of the tax affairs of the UK chancellor's wife, Akshata Murty. Enjoying the benefits of 'non-dom' status is a legitimate method to mitigate an individual's UK tax liability and not to be confused with tax avoidance (which is illegal).
However, the rules on domicile are complex and professional advice should always be taken. Jenny Walsh, a specialist international estate planning solicitors and partner at Osbornes Law look at what non-domiciled status is and what benefits there may be of choosing a non-domiciled status.
What is non-UK domiciled status?
If you're registered as a non-UK domicile with HM Revenue & Customs, special rules will be applied to your foreign income. Essentially, you would pay no UK tax on income or gains earned abroad, unless you bring that cash into the UK.
Enjoying non-domiciled status effectively means your permanent home/primary connection is in another country and any income earned abroad will not be subject to tax here.
It also has inheritance tax (IHT) benefits: if you're domiciled in another country at the time of death, your foreign assets will not be subject to UK IHT. However, there are 'deemed domicile' rules which apply for taxation purposes when you have been resident in the UK for a number of years, depending on whether you were born in the UK or not. So even if your actual domicile is elsewhere, you may be caught by the deemed domicile rules, so it is important to take advice on how these rules affect you.
That said, it's important to note that if you are non-UK domiciled, the rules of succession in the country of domicile may impact how you would choose to distribute your property and assets on death.
It's therefore vital to consider the potential effect of the laws in the country in which your foreign assets are located on your succession plans.
Can I seek non-dom status?
Non-dom status is highly attractive if you are a HNW individual owning assets abroad and are looking at ways to protect your wealth and reduce your tax liabilities.
If you're a UK resident but have a primary connection (usually, your permanent home) in another country, you may be able to choose to be domiciled there. Typically, the other country is the place that the individual's father considered to be their permanent home at birth.
So, if you have a primary connection within another jurisdiction, you could qualify for non-UK domiciled status as a tool to mitigate your potential tax liabilities.
The specific requirements are, in addition to having a primary connection:
- You must be able to actively demonstrate to HMRC that your domicile is not the UK
- You must intend to eventually return to the stated country of domicile
- You must specifically apply for tax exemption if your foreign income exceeds £2,000
Enjoying the benefits of being a non-dom may eventually come at a price: if you have lived in the UK for more than 7 years out of the previous 9 tax years, you will be required to pay a hefty annual sum to the government. Initially £30,000, it rises to £60,000 a year after 12 years.
The non-dom tax break will eventually end once you've been in the UK for 15 years out of the previous 20 tax years.
Where you are able to claim non-UK domiciled status, it may be prudent to consider creating a 'non-resident trust', which can provide additional tax benefits.
Consideration should also be given to the terms of your will(s), and whether you should have a will in each jurisdiction or one 'worldwide' will – Osbornes' specialist wealth planning solicitors will discuss these matters with you. This is especially significant if your country of domicile has a 'forced heirship' regime.
The private client team at Osbornes are ranked as leading lawyers in London and can help with wealth planning, including estate planning, tax planning and trusts.
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.