What is a non-UK domicile status, and what are the tax benefits?

If you follow political or financial news, then you may recently have found yourself wondering what all the fuss is about non-UK domicile status.

For those not in-the-know, Chancellor of the Exchequer Rishi Sunak’s wife has been in the media spotlight for her non-UK domicile status. This status confers a number of tax advantages, so we have decided to explain the subject.

Domicile is a legal term that refers to the country where an individual has established their permanent home. For tax purposes, this status determines whether or not you are considered a UK resident and therefore subject to certain tax obligations, such as paying income tax on your worldwide earnings.

There are two primary factors in determining your domicile – physical presence and intent. If you have lived in the UK for most of your life, it is likely that you will be considered a UK domiciled resident, even if you leave the country at some point. However, it is possible to change your domicile status by establishing residency elsewhere and showing clear evidence of an intention to remain there permanently.

If you are a non-UK domiciled resident, you may still be liable for UK taxes on your income and gains, but you may be able to claim certain reliefs and exemptions. (This is a complex area of tax law, so it is important to seek professional advice if you are unsure about your status or tax obligations).

Unlike UK domiciled people, non-UK domiciled can be assessed for tax on either an arising basis (the standard way in which all UK domiciled people are assessed for tax) or a “remittance” basis.

The remittance basis allows individuals who are both non-UK domiciled and UK resident to pay tax only on income and gains from sources within the United Kingdom, but at a cost. Individuals using this basis lose access to certain tax reliefs, such as the personal allowance and annual exemption. Additionally, overseas income and gains will not be subject to UK tax unless they are brought into the country.

However, remittance basis users can become eligible for a charge on top of their UK tax liability if they are resident in the UK for a long time. If they remain in the country for nine years and use the remittance basis for seven of them, they become eligible for an additional £30,000 annual charge. And if they have been resident in the UK for 14 years and used the remittance basis for 12 of them, that becomes a £60,000 charge.

So, the advantages of using the remittance basis include being able to keep more of one’s income by paying less tax, and being able to avoid the complicated process of reporting overseas income and gains on a UK tax return. However, there are also several potential disadvantages of using the remittance basis, including having to pay an annual charge for doing so and losing access to certain tax reliefs. Additionally, any income or gains that are brought into the country will be subject to UK tax.

To determine whether it makes sense for an individual to use the remittance basis, it is important to consider factors such as their other sources of income in the UK and abroad, how much time they spend in the country each year, and whether they would benefit from any available tax reliefs. Ultimately, there is no “one-size-fits-all” answer when it comes to using the remittance basis, and each individual’s circumstances will need to be considered on a case-by-case basis.

If you would like to discuss whether non-UK domicile status would be appropriate for you, and how to go about attaining it, call JW Hinks on 0121 456 0190 and ask to speak to our tax team.