What are the real advantages of a non-UK domicile status in the UK?

In light of Rishi Sunak’s wife’s non-UK domiciled status coming under scrutiny in the press we have taken this opportunity to highlight the key areas of this topical issue. These include outlining the concept of domicile and what this means for UK tax purposes including the potential advantages that can be obtained.

What is domicile?

Every individual has one domicile. This is a common law concept. Unlike residence, it is not possible to be domiciled in two countries or not to be domiciled anywhere. There are various different types of domicile most notably domicile of origin and domicile of choice.

A domicile of origin is normally acquired from the person’s father at birth (or mother if the parents were not married). This is not necessarily the country in which the person was born however in most cases this is applicable. This domicile is difficult to displace. Simply leaving the country of domicile and going to live elsewhere does not necessarily mean that the domicile of origin is displaced. There are many thousands of foreign nationals living and working in the UK. These foreign nationals are UK resident for tax purposes (under the statutory residence test) but have not lost their non-UK domicile of origin.

A domicile of choice is more of a grey area. To acquire a domicile of choice the taxpayer will leave the UK and settle permanently in another country. Permanently means the taxpayer would remain in the other country indefinitely. This is not defined by our laws therefore a domicile of choice is determined by the intentions of the taxpayer. These intentions include their permanent residence, business social and family interests, ownership of property and where any Will has been made. Hence this can cause disputes with HMRC.

Under UK tax law a non-UK domiciliary will become deemed domiciled in the UK if they have been resident in the UK for 15 of the previous 20 tax years.

Why is this important?

Domicile status is important as there are certain advantages to be utilised by non-UK domiciled taxpayers residing in the UK.

A UK domiciled and UK resident individual is taxable on the arising basis. This means they are subject to UK tax on their worldwide income and gains whilst utilising their personal allowance and annual exemption.

A non-UK domiciled and UK resident individual can be assessed on either the remittance or arising basis whichever gives the most advantageous tax liability. The remittance basis allows a taxpayer only to be subject to UK tax on their UK source income and gains. However, they will lose access to their personal allowance and annual exemption. Overseas income and gains are only taxable when remitted to the UK. Remittance basis users are subject to a charge on top of their UK tax liability when they have spent a certain amount of time in the UK. The charges are on two levels the first is a £30,000 annual charge if the remittance basis has been used for seven of the previous nine years. The second annual charge increases to £60,000 and is charged if the taxpayer has been resident in the UK for 12 of the previous 14 years. Therefore, until the taxpayer becomes deemed domiciled, there are many tax efficient planning opportunities that non-UK domiciled individuals can utilise to ensure their overseas income and gains are not subject to UK tax.

Many commentators have criticised the tax advantages utilised by non-UK domiciled individuals living in the UK. However, by utilising these tax advantages these non-UK domiciliaries are simply following the rules set out by the Government and the required reporting requirements.

How can we help?

Our specialist team of private client tax consultants have extensive experience with all issues that non-UK domiciliaries face when ensuring they meet UK filing requirements and planning their UK tax affairs. If you have any questions about this article, please get in touch.