New rules regarding the taxation of those who are not domiciled in the UK, but who are resident/ordinarily resident here were introduced from 6th April 2008. It is now a case of deciding at the end of each tax year which is the most tax advantageous method to elect for, either the “arising basis” (which is the default position) or the “remittance basis”.
The arising basis means being taxed on worldwide income and capital gains with the availability of claiming the tax free personal allowance against income and annual capital gains exemption. Credit will be being given for overseas tax paid against the UK tax liability.
The remittance basis means being taxed on UK income and capital gains plus overseas/offshore income and capital gains brought into the UK but losing the entitlement to claim the tax free personal allowance against income and annual capital gains exemption. Credit will still be given for overseas tax paid against the UK tax liability.
Where the unremitted overseas/offshore income and capital gains amount to less than £2000, the remittance basis will be given with full entitlement to the tax free personal allowance against income and annual capital gains exemption.
Where the individual has been resident in the UK for the whole or part of 7 out of the previous 9 tax years prior to the year of assessment, an additional £30000 remittance basis tax charge will apply, designed to hit the very wealthy “non-doms” residing in the UK. This in itself may therefore be enough to decide that being assessed on the arising basis is the cheaper option.
It is therefore necessary to prepare comparative calculations at the end of each tax before deciding how to complete your self-assessment tax return and that is assuming you are confident that you qualify as being non-domiciled in the first place, bearing in mind this could always be open to challenge by HM Revenue & Customs (HMRC).
Bank accounts will need to be correctly set up to segregate and identify income from capital, bearing in mind capital remittances are not taxable, and accurate records maintained regarding the inward and outward movements within the accounts.
Domicile being a concept of law and used in tax law is a complex subject and has implications for inheritance tax irrespective of one’s residence status. Claiming to be non-domiciled for inheritance tax purposes does not mean you have to do so for income and capital gains tax purposes and claim the remittance basis.
The new Government announced in their emergency Budget that they intend reviewing the taxation of non-domiciled individuals. So, there may be further changes to take into consideration in due course.
Has your domicile of origin been replaced with a domicile of choice or domicile of dependence ? How does that impact on your UK tax liabilities ? It is recommended that you obtain an independent professional opinion on your domicile and review of the implications for UK tax purposes to help support your claim should HMRC enquire into your tax return.
If you are interested in a review of your domicile and a written report giving a professional opinion and advice together with the implications for UK tax purposes or would like to have annual comparison tax calculations prepared to establish whether to be assessed on the arising basis or claim the remittance basis, along with the completion of your self-assessment tax returns, please contact me.
