To be a non-dom tax (or non-domiciled) resident in the UK, you will typically be a foreign national living in the UK. While you may be considered a tax resident, your domicile will typically remain as your country of birth. If you are considered as a “non-dom” you will not be able to live in the UK indefinitely.
Depending on your personal circumstances, your tax residence status in the UK may change from year to year, so to ensure you are aware of the tax consequences, we always recommend you seek independent and qualified tax advice. Please do not rely on this article to make any financial decisions about your non-dom status or tax situation.
Non-dom tax planning
As a UK resident non-dom (non-domiciled) individual you have the option of being taxed on two basis, the arising basis and remittance basis.
The arising basis is when you will be liable to UK taxation on your worldwide income and gains when it arises.
The remittance basis of taxation for non-doms
The remittance basis of taxation is when you choose to be taxed only on your UK income and gains and ONLY foreign income and gains you bring back to the UK. From April 2017, if you were either born in the UK or are a long term resident of the UK (resident for at least fifteen out of the last twenty tax years) you can no longer use the remittance basis and you will be taxed on the arising basis.
If you are a non-dom living in the UK and have have used the remittance basis between April 2008 and April 2017, it may be possible to cleanse any mixed funds in offshore accounts to avoid paying tax on foreign earned income that you want to bring into the UK. If you believe that you may benefit from cleansing mixed funds.
You have the option of electing for either every tax year depending on your circumstances for that year. For example one year it may be more tax efficient to claim the arising basis as opposed to the remittance basis.
To claim for the remittance basis it’s free of charge for the first six years of residency. After that if you want to enjoy this favourable treatment there will be an annual charge known as remittance basis charge.
The remittance basis charge is £30,000 if you have been resident for seven out of the last nine years rising to £60,000 if you have been resident for twelve out of the last fourteen years and finally £90,000 if you have been resident for 17 out of the last twenty years (although the £90,000 charge only applies up to 6th April 2017.
If you are a UK resident claiming the remittance basis of taxation in a tax year, you will lose your entitlement to your tax free personal allowances (£10,600 in 2015/16 and £11,000 in 2016/17) and capital gains tax free allowance (£11,100 in 2015/16 and 2016/17) in that year unless your total income and gains in the year is less than £2,000.
To claim for remittance basis, you MUST file a self assessment tax return. The remittance basis is not automatic! If you do not claim for this treatment, the tax authorities will assume you are taxed on the arising basis and hence you will have to declare your worldwide income!
If you are a UK resident non-domiciled individual with foreign income and gains of more than £2,000 per tax year you will need to consider every tax year which of the two basis is more tax efficient for you. This is very important.
This area of tax is very complex and as such we strongly advise you seek professional tax advice early to ensure you fully comply with UK tax laws. The onerous on you to ensure you make the correct declaration.
Foreign income comprises investment income such as bank interest, dividends, pensions and rental income (and any other income). Gains may relate to disposal of foreign property or shares (or any other assets).
Mixed funds cleansing
Non-dom UK income tax rates
In the UK, there are three rates of income tax which would be apply to an individual’s income in a tax year starting at 20% for an income of £31,785 or lower, 40% for income up to £150,000 and 45% for income over £150k per tax year.
If you are a UK resident and your total income from various sources is less than £100,000 you will also receive a tax free personal allowance of £10,600 (2015/16 tax year). This personal allowance means that you will not be charged tax on the first £10,600 of your income.
If you are UK resident non-dom individual, you will may be liable to income tax on your worldwide income, unless you claim the remittance basis of taxation and keep your foreign income abroad.
Non-dom Capital Gains Tax rates
Capital gains tax rates are 18% and 28% depending on your total taxable income. For example if you are higher rate tax payer (pay tax at 40% or 45%), you will be liable to Capital Gains tax at 28%. Every individual is entitled to a capital gains tax free allowance (£11,100 in 2015/16) so only gains in excess of this allowance will be chargeable to capital gains tax. A UK resident non dom claiming the remittance basis will lose their entitlement to this allowance.
UK inheritance tax for non-dom residents
If you are UK resident non-dom or not deemed domicile (have been resident in the UK for less than 17 out of the last 20 tax years) in the UK you will only be liable for UK inheritance tax on assets situated in the UK.
However, if you become domicile or deemed domicile (been resident in the UK for at least 17 out of the last 20 years) in the UK, you will be liable for UK inheritance tax on your worldwide assets.
UK inheritance tax will be payable where the total value of the estate of the deceased is over £325,000. If the final estate is valued at under £325,000 there is no inheritance tax to pay. Any amount over this will attract an inheritance tax charge of 40%.
For example, if the estate was worth £400,000, there would be no inheritance tax due on the first £325,000, but 40% on £75,000.
Inheritance tax will be charged on:
- The final value of the estate (including property, shares, money and other financial assets)
- Gifts made to other individuals within seven years of death
- Lifetime gifts to trusts and companies (although there are some exceptions to this)
- Some assets which are held in trusts
It is possible to mitigate UK inheritance tax, but will require careful planning with a tax adviser and independent financial adviser.
How do non-doms declare and pay tax in the UK?
In the UK, some individuals are required to complete a self assessment tax return which means it is your responsibility to report your taxable income and gains to the HMRC before paying the tax which is due. The onerous is on you to notify HMRC that you need to file a tax return and not the other way round!
The 2014/15 tax year ran ended on the 5th April 2015 and tax returns for incomes and gains made during the year to 5th April 2015 need to be submitted and paid before January 31st 2016, or a fine of £100 will be imposed for late filing which will increase the longer the return remain outstanding.
In extreme circumstances, HMRC may investigate individuals and conduct an investigation covering the previous 20 years, so it is important that you keep records for as long as possible.
Incorrect submission of a tax return could incur a fine as well as a penalty of up to 100% of the total tax due. The severity of any penalty will be dependent on the behavior of the individual on how the underpayment has occurred and if it was deliberate or accidental and who made the discovering of the underpayment.
It is also possible to pay too much tax in a tax year and your tax return will uncover this and mean that you may be the recipient of a tax refund!
If you are resident not domiciled in the UK with foreign income and gains of more than £2,000 per tax year, you will have to submit a tax return and it is important that you get assistance on ensuring that you complete your tax return correctly to avoid potential penalties, and also ensure you have not overpaid your UK tax.
Request a free tax consultation
If you are living in the UK and have questions or concerns over your tax situation, enter your details via the form to request a free initial tax consultation with a qualified tax adviser who will be qualified to provide:
A detailed assessment of your current UK residency status, including
- Recommendations on how you could reduce your tax burden
- Advice about the forthcoming changes to the non-dom rules in the UK
- Analysis of your tax position in the UK
- Opportunities on how to structure your financial assets to minimise your tax exposure
