There has been an increased focus on what constitutes resident non-domiciled status (non-dom) and who this applies to.
What is the difference between domicile and residency?
Residency is where you live or reside.
Domicile is where you are from, typically your place of birth.
What is resident non-domiciled status?
UK residents whose place of birth and permanent home is outside the UK may not have to pay tax in the UK on their foreign income nor any foreign capital gains that they make such as the sale of an overseas second home.
UK citizens born in the UK however, cannot simply purchases a second home overseas and declare this to be their main residence to be considered non-domiciled.
A person's domicile is usually the country your father considered his permanent home at the time of your birth. This may have changed in circumstances if you have moved overseas since and do not intend to return to the country.
Guidance from HMRC can be find here.
What tax do you pay in the UK if you are non-domiciled?
UK tax on foreign income or gains is not paid if:
In a tax year, the income or gains are less than £2,000
If income or gains are brought into the UK
Any foreign income, or gains, of at least £2,000, or any money brought into the UK must be declared in a Self Assessment Tax Return. There are then two options available to non-domiciled individuals.
Either pay UK tax on this
Claim remittance basis
What is Remittance Basis?
Remittance basis means UK tax is only paid on income or gains non-domiciled individuals bring to the UK with the following conditions:
Tax-free allowances for Income Tax and Capital Gains Tax are lost (although certain ‘dual residents’ may be able to keep these)
An annual charge will need to be paid if an individual has been a resident of the UK for a certain amount of time
What is the annual charge under the remittance basis?
The annual charge is either £30,000 for non-dom residents who have been in the UK for at least seven of the previous nine tax years or £60,000 for those who have been in the UK for a minimum of 12 of the previous 14 tax years.
Understanding and claiming the remittance basis can be complicated, however, our personal tax team is able to assist clients with this.
UK statutory residence test (SRT)
Introduced at the start of the 2013/14 tax year, the statutory residence test is a complex set of rules used to determine an individual’s tax residence. The test sets out what makes a person a UK resident for tax purposes.
In determining residence status for the purposes of defining your tax liabilities before the 2013/14 tax year, the test cannot be used. In these instances, guidance on the Remittance Basis should be referred to.
Special rules that apply to other circumstances
If you work both in the UK and overseas, special rules apply. There are also specific rules as to when Overseas Workday Relief can be claimed if you are sent to work in the UK by your employer on a secondment.
Special rules also apply to those who come to the UK to study.