There have been a lot of changes to the tax position for non-domiciled individuals and this article sets out some of the main changes.
Inheritance Tax (‘IHT’)
Domicile is particularly important for IHT purposes. If you are UK domiciled or deemed to be domiciled here when you die, all your worldwide assets will fall in the charge to UK IHT. If you are not UK domiciled when you die, it is only your UK situs assets that fall within the charge to UK IHT.
Generally speaking you will have a domicile of origin in the UK if your father was born in the UK. You will have a foreign domicile of origin if your father was born outside of the UK.
If you are UK domiciled and you decide to emigrate and settle permanently in another country, you will be deemed to be UK domicile for 3 years.
If you are non-UK domiciled but living in the UK, you were able to retain your non-domicile status until you have been resident in the UK for 17 out of 20 tax years. At this point you became deemed UK domiciled. Once this happened, you could only revert to your non-domicile status by leaving the UK and being non-UK-resident for 4 tax years.
From April 2017, if you are not UK domiciled, you will be deemed to be UK domiciled once you have been in the UK for 15 out of 20 tax years. However, whereas the concept of deemed domicile used to only apply for IHT purposes, from April 2017 it will apply for ALL tax purposes. This change does not affect your domicile status for legal purposes, but it will change the way that you are taxed in the UK.
If you were historically domiciled in the UK but have successfully changed your domicile position by settling in another country, you will need to seek advice if you intend to return to the UK and become resident here. New rules have been introduced from April 2017 which may mean that you will reacquire your UK domicile status.
Income and Capital Gains Tax
Under general UK tax rules, if you are resident in the UK you will be taxed on your worldwide income and gains. If you are not domiciled in the UK, however, you were able to limit the UK tax charge to your UK source income only. UK tax would only be paid on your offshore income if you physically bring it to the UK. This is commonly known as the remittance basis of tax.
Over the last few tax years, numerous changes have been made to the remittance basis of tax. These included the introduction of a remittance basis charge which increased depending on the number of years you were UK resident. Until 5th April 2017 the charges were:
• 7 out of 9 tax years £30,000
• 12 out of 14 tax years £60,000
• 17 out of 20 tax years £90,000
Since April 2017, no remittance basis charge applies after you have been UK resident for 15 out of 20 tax years. Instead you will be deemed to be UK domiciled and the remittance basis will no longer be available to you. You will be taxed on your worldwide income and gains. If at 6 April 2017 you have already been in the UK for 15 tax years, you will need to pay UK tax on your worldwide income and gains from this date.
If you have any questions regarding your domiciled status or your non-domicile tax position, please get in touch here.