Being non-domiciled in the UK or having non-dom status gives you a massive tax break. For wealthy residents, it means they can stay in the UK tax-free for the first seven years and pay a nominal amount in future years. This only applies to overseas income.
Income generated in the UK does not benefit from your non-domiciled in the UK status. Want to find out some more about whether this is something you could utilise? I will cover more details in the article and if you have any questions, please email me at info@investmentsforexpats.com
Finer Details of Being a Non-Dom
Let’s look at some of the finer points of the “non-dom” rule.
If you’re not domiciled in the UK you’ll be considered a non-dom. Non-doms are people who live in Britain but have strong ties to another country, like India or Ireland. They receive non-domiciled status—or non-dom status from their country of origin, which gives them special tax privileges.
For example, when a non-dom is paid by an overseas company he or she does not need to pay United Kingdom Income Tax on these earnings if they remain outside of the UK (called an “offshore” payment).
The only exception to this rule is if a non-dom works full time in the UK for an overseas company. In that case, he or she must pay United Kingdom Income Tax on their salary as usual. That said, if a non-dom receives income from other countries and pays tax there instead of in the UK (for example property income), then this payment may be eligible for exemption from UK tax as it may be regarded as arising offshore (although there are exceptions).
The first thing to remember is that you are only eligible for non-domiciled (non-dom) status if you have spent less than 15 of the last 20 years in the UK.
If you are unsure of whether you qualify, ask yourself the following questions:
- Were you born outside of the UK?
- Has it been more than 15 years since you have been in the UK?
- Have you spent less than 15 years in the UK in the last 20 years?
If your answers are yes to all three, congratulations! You qualify for non-domiciled status—but only if your father or grandfather did not hold permanent residence at any point during your lifetime. If you answered no to any question or if your father/grandfather was a permanent resident, then unfortunately this option is not available for you.
Additionally, UK citizens are not eligible for non-dom status and therefore cannot take advantage of its tax benefits.
Once you have been verified as a non-domiciled, you will fall into two categories – remittance basis or arising basis (although in reality, very few people tend to opt for arising basis).
Remittance Basis
In order to be eligible for the remittance basis an individual must be non-UK domiciled and have had a UK residential status in the previous 3 years. Under this method, you only pay tax on the portion of your income that has been remitted to the UK.
See HMRC’s latest guidelines on non-domiciled status here.
For the first 7 years of your residence in the UK, you will pay no income tax at all on overseas income.
After 7 years you will pay a fixed charge of £30,000 per year. This will rise to £60,000 after being in the UK for 12 years. These timescales could be doubled if you only spent 6 months of the year in the UK.
Remittance lets you keep hold of any income gained outside of the UK without HMRC taking a bite of it.
There is one condition: the funds mustn’t be used to buy anything in the UK. If they are, you’ll pay income tax on that particular sum on top of your normal tax bill. Any money made within UK borders and invested at home will be taxed.
Increasingly, non-doms have been bringing their overseas income into the UK. This strategy – called “remittance basis” – allows them to avoid paying tax if they don’t spend this money inside Britain. Do so and you will incur additional personal income tax rates and capital gains taxes on any assets sold inside the country.
Arising Basis
Under this system, all sources of income are taxed when received irrespective of whether or not it is remitted to Britain. You may still claim double taxation relief by claiming against any overseas taxes paid on these amounts.
You will also be able to reduce your tax bill by claiming certain things as business expenses.
As a non-dom, you should also be able to reduce your tax bill by claiming certain things as business expenses. This includes rent, maintenance, insurance and council tax payments on your property. However, claiming expenses is not as simple as many people think and it is important to seek professional advice on what qualifies as a business expense.
For example, some expenses are only valid if you are renting the property out; meaning they cannot be claimed while the property is not occupied by tenants. What kinds of expenses you can claim will depend on your tax status and whether or not the property is considered a resident for tax purposes. If in doubt, always check with HMRC before making any claims.
Being Non-Domiciled in the UK Has Lots of Advantages: Be Sure to Seek Advice to Avoid Pitfalls
The reason that so many billionaires from around the world choose to live in the UK is the non-domiciled tax status. Non-doms have a substantial advantage over UK citizens. There are also many ways to ensure that money remitted to the UK is never taxed either. The UK can be one big tax haven for anyone non domiciled in the UK.
However, don’t jump in without seeking advice. We can help set up your holistic plan to become non-domiciled in the UK and save you millions in taxes.
Even if you’re on a remittance basis, you’ll still need to pay taxes on any income generated from within the UK and pay capital gains tax on any assets sold in the UK.
If you have a business which operates in the UK, you’ll have to pay corporation tax and VAT on your business. If you own a property in the UK, unless it’s your main home, it will be subject to inheritance tax when you die.
If you’re looking to buy property within the UK as a foreign buyer, there are a few things that you need to be aware of when it comes to your non-domiciled tax status.
As a ‘non-dom’, you have two different ways of being taxed. You can be taxed on a remittance basis or an arising basis, and this applies whether you are buying or selling UK property as a foreign buyer or seller.
The first step is to work out which type of non-domiciled resident you are. There are two types:
- Remittance basis – if you want to live in the UK tax free, then this is for you. You need to make sure that you’ve lived in the UK for less than 15 of the last 20 years and then HMRC will allow you to claim this status. Once claimed, any income that is brought into the country from overseas (i.e money earned abroad) isn’t subject to UK tax within this period unless it is remitted into the country. The other benefit is that any inherited income that comes from assets abroad also isn’t subject to tax in this period either;
- Arising basis – if your main residence is outside of the UK and at least one parent was born outside of Britain then you could use an arising basis instead of a remittance based system when tax planning your finances in future years. Overseas income won’t be taxed until it enters Britain; similarly, capital gains made on assets overseas won’t be taxable until they enter Britain either (or become deemed remittances).
What is the Difference Between Domiciled & Non Domiciled?
In terms of the UK tax on non-domiciled people, it means a UK resident whose family are not originally from the UK. A domiciled resident is a UK citizen who has always lived in the UK
How Long Can a Non-Dom Stay in the UK?
There is no time limit on how long a non-domiciled person can stay in the UK. Provided they comply with all immigration rules they can stay as long as they please.
Can a UK citizen Be Non-Domiciled?
It’s possible for someone who’s non-domiciled to apply for UK citizenship after 5 years of being in the UK. They would not lose their non-domiciled status upon obtaining British citizenship. Therefore it’s possible for a UK citizen to be non-domiciled.
Summary & Conclusion
If you are a high net worth or you are being asked to work in the UK for a period of time by an employer then you can potentially enjoy reduced tax if you are classed as non-dom.
To become a non-dom, you do have to apply for it and choose which scheme you would like to fall under, whether that be Remittance or Arising. As I mentioned above, most usually go for remittance, however, this does depend on your situation.
I help high net worth clients reduce their tax bills and obtain more freedom by diversifying their residences and citizenships globally. If this is something you would like to speak about or ask questions about, please email me at info@investmentsforexpats.com
