The concept of non-UK domicile status (or “non-dom” status) is an area of repeated interest in the UK.
What is "non-dom" status?
An individual can either be UK-domiciled or domiciled outside the UK (a “non-dom”).
An individual’s domicile is often defined as the place where the person has their permanent home or where they ‘belong’. It is important to note that domicile status differs from residency status for tax purposes. For instance, you may be resident in the UK for tax purposes but be domiciled elsewhere, and vice versa.
It is essential to understand whether an individual is non-UK domiciled as it may impact their UK Inheritance Tax ‘IHT’, income tax and capital gains tax position.
Understanding your domicile status – are you a non-dom?
An individual can only have one country of domicile.
The following are general rules used to determine an individual’s domicile status. Of course, as with all things tax, these rules are complex, and the below is only intended to provide a summary of the main points:
Domicile of origin
- An individual’s domicile of origin is acquired at birth (in England and Wales, this is typically the same as their father’s domicile when they are born if their parents are married – or their mother’s if their parents are not married).
- Until an individual is no longer dependent (in the UK, a dependent person is anyone under 16), their domicile status will follow the domicile status of the person that they depend on, such as a parent or legal guardian. This is known as the domicile of dependence rule.
Therefore, an individual could be non-UK domiciled if their parent/legal guardian from whom they acquired their domicile of origin was non-UK domiciled when they were born. This might be the case if they were born outside the UK.
Domicile of choice
- Individuals who are over 16 and live in a jurisdiction different to that of their domicile of origin may obtain a domicile of choice if they form a clear and fixed intention of making that new place their permanent home or to reside there indefinitely (and have cut ties with the country of their domicile of origin).
- However, it is not easy to replace a domicile of origin with a domicile of choice and will depend on the individual’s personal circumstances, and there would need to be strong evidence to suggest the above (there is no way to change domicile status easily).
Therefore, if an individual was born with a UK domicile of origin and has left the UK to live in a different jurisdiction and has a fixed intention of making that new jurisdiction their permanent home or to live there indefinitely (and has cut ties with the UK), they may have acquired a non-UK domicile of choice.
Deemed domicile rules
However, there are also deemed domicile rules to be aware of: broadly, an individual who is not otherwise domiciled in the UK will be deemed to be domiciled in the UK if they have been UK tax resident for at least 15 of the 20 tax years immediately preceding the relevant tax year.
There are also specific rules for formerly UK-domiciled residents: in summary, if they were born in the UK (and had a domicile of origin) and return to the UK, their domicile of origin status is reinstated.
How non-domicile status impacts tax position
Inheritance Tax (IHT)
If an individual is UK domiciled, they will be subject to UK Inheritance Tax (IHT) on transfers of all their assets (regardless of where they are situated).
In contrast, if an individual is non-UK domiciled, they will only be subject to UK IHT on transfers of assets situated in the UK. This might be relevant if an individual has moved overseas on a permanent basis and has significant UK assets on their death (for IHT).
The remittance basis for tax
A UK resident and non-UK domiciled individual may be able to claim the remittance basis, so that foreign income/gains are only taxed in the UK if they are brought into the UK or used or enjoyed in the UK.
This might be relevant if an individual is living in the UK and has a non-UK domicile of origin and intends to return to their country of origin (i.e. their stay in the UK is not permanent/indefinite, and they have not severed ties with their home country such that they have not acquired a UK domicile of choice. The deemed domicile rules would also need to be considered).
Does non-dom status provide a favourable tax position?
Being a non-dom could, therefore, be favourable from a UK tax position. However, if an individual claims to be a non-dom for UK tax purposes (e.g. on a tax return), HMRC could challenge this – the rules regarding domicile status must be fully understood before forming a conclusion about a person’s domicile status.
How to check your domicile status
Determining domicile status involves a detailed analysis of an individual’s past actions and future intentions and is not a simple exercise. Consequently, it is essential to obtain professional advice if you believe you may be a non-dom to help you to decipher the rules and understand your position.
If you think you might be non-UK domiciled, this could benefit you from a tax perspective, but we strongly recommend that you discuss your case with one of our qualified tax advisers to understand your position.
Tags: International Taxes