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Tax Advantages of Non-Domicile Status

Newsletter issue - October 07.

Your domicile is broadly the country that is your natural home. This is normally the country where you live permanently such as the UK, but if you were born in another country, or your parents were born in another country, your domicile may be that other country. In this case you are treated as not having a UK domicile, i.e. be non-domiciled in the UK.

There are advantages to being non-domiciled while living in the UK...

  1. Income and Capital Gains. If you have income or capital gains that arise outside of the UK, those amounts will not be taxable in the UK unless you bring the money into the UK. This process of bringing funds into the UK is called a making a remittance. It is easy to accidentally remit money to the UK from off-shore sources, for example when a cheque passes through the UK banking system it is treated as being remitted to the UK, even if the funds are immediately paid out of the country again. If you do have non-domiciled status you need to fully understand the remittance rules to ensure you keep your off-shore funds completely separate from any UK earnings.
  2. Inheritance Tax. If you have lived in the UK for less than 17 tax years, and you are non-domiciled in the UK, any assets you have which are located outside of the UK are not subject to UK inheritance tax, although they may be taxed in the country where they exist. This advantage for inheritance tax disappears once you have been resident in the UK for more than 17 tax years out of the previous 20 years, so any action required to protect those off-shore assets from UK tax needs to be taken before that 17 year deadline is reached.

It is possible to change your domicile, but it is not a straightforward process. Say you emigrate to France, and cut all your ties with the UK, you could be said to have given up your UK domicile and taken on a French domicile. However, if you later express a desire to return to live in the UK, the Taxman will argue that you never gave up your UK domicile. This has implications for inheritance tax as your worldwide estate is subject to UK inheritance tax if you die with a UK Domicile, even if you have lived outside of the UK for many years.

If you believe you could be not domiciled in the UK please talk to us about tax planning as soon as possible.