Andrew Baker - Taxation Consultant
www.baktax.com
UK tax advice for residents worldwide – including Non-Resident Landlords, Pilots, Aircrew, Seafarers, Yacht Crew and Non-Doms
Telephone:
+44 (0)1243 582926
Mobile: +44 (0)7795671536
Email: baktax@aol.com
Non-Doms
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 given for any 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 when it is 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 on the remittances against the UK tax liability.
Where the unremitted overseas/offshore income and capital gains amount to less than £2000, the remittance basis will be granted with full entitlement to the tax-free personal allowance against income and annual capital gains exemption.
Where an 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.
This increased to £50000 after being resident for 12 years out of the previous 14 effective from 6th April 2012. And increased again to £60000 from 6th April 2015.
Further changes were introduced from 6th April 2017. Non-doms resident in the UK during 15 out of the previous 20 tax years prior to the tax year of assessment will automatically be deemed to have a UK domicile ie from 6th April of the 16th year.
In addition, individuals returning to the UK may also be deemed to have a UK domicile from 6th April 2017 or the date of return if after this date, provided they were born in the UK with a UK domicile of origin. 6 years of non-residence will subsequently be required in order to "reset the clock" for the 15 year deemed domicile rule.
All UK resident non-domiciled individuals including those becoming deemed domiciled in April 2017 and paying tax on the remittance basis, will have a window of 2 tax years from April 2017 to rearrange their mixed funds held in overseas/offshore bank accounts, where adequate records have been kept and re-base their non-UK assets for capital gains tax at market value as at 6th April 2017. Unfortunately, this is not available to those returning to the UK as deemed domiciled.
Although designed to hit the very wealthy “non-doms” residing in the UK, this in itself may therefore be enough for the average "non-dom" to decide that being assessed on the arising basis is the cheaper option.
It is therefore necessary to prepare two comparative tax calculations at the end of each tax year before deciding how to complete your self-assessment tax return. 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 and gains 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 also has implications for inheritance tax irrespective of one’s residence status. However, the 15 out of the last 20 year rule will replace the current 17 out of the last 20 year rule, bringing inheritance tax in line with income and capital gains tax, the implications being that - where UK domiciled - this will result in one's estate being liable to inheritance tax on worldwide assets and not just UK-situated assets where non-domiciled.
Has your domicile of origin been replaced with a domicile of choice or domicile of dependence? How does your domicile impact on your UK tax liabilities ? It is recommended that an independent professional opinion on your domicile and a review of the implications for UK tax purposes be obtained to help support your claim should HMRC enquire into your tax return.
Replacement of the Non-Dom tax rules
With effect from 6th April 2025, the above tax rules for non-doms will be abolished and replaced with a new regime as follows.
Non-residents who return to reside in the UK and who have qualified as not-resident for the previous 10 tax years can opt to be for their overseas income and gains (including distributions from non-resident trusts) to be exempt from UK tax for the first 4 tax years of UK residence. After those 4 years they will be liable for UK tax on worldwide income and gains.
However, if opting for this method they will lose their entitlement to claim the tax free personal allowance and annual capital gains tax exemption.
Transitional rules will apply to current UK resident non-doms who move from the remittance basis to the arising basis and do not qualify for the 4 year rule. For the 2025/26 tax year, only 50% of their overseas income and gains will be liable for UK tax and from 2026/27 they will be taxed in the normal way.
For the 2025/26 and 2026/27 the remittance of pre-6th April 2025 foreign income and gains (other than from within offshore structures) will be taxable at 12%.
