The issue of being domiciled came into sharp focus in April 2022, when it was revealed that the chancellor’s wife, Akshata Murty, was claiming non-domiciled tax status. Otherwise known as “non-dom”, the status means she is subject to more beneficial tax rules.
According to the BBC, Ms Murty cut her tax bill by £2.1 million after paying £30,000 to maintain the status. It should be stressed that she has not broken any tax laws, and anyone eligible for non-dom status may be able to reduce their tax liabilities too.
Read on to find out what a non-dom is, whether your clients may also be able to benefit from it, and why care needs to be taken.
Non-dom is when you are a UK-resident but have a permanent home outside the UK
It’s possible to live in the UK but not be UK-domiciled. This is because the country you are domiciled in is typically the country you were born in, and usually remains with you for life.
As such, you become a UK non-dom in one of two ways:
- You were born outside the UK or if your father came from a different country. This is your “domicile of origin”.
- You are over 16 and choose to leave the UK to live indefinitely in another country. This is your “domicile of choice”.
This could mean that you have a client who lives in the UK but is not domiciled in Britain, perhaps because they are a UK-resident who also has a permanent home outside the UK.
Income Tax for non-doms is charged on a “remittance basis”
If your client is a non-dom, they can opt to be assessed for Income Tax using a remittance basis. This means the tax is only calculated on income they earn in the UK or that is paid into a UK bank account.
As such, they do not pay UK tax on any income or capital gains earned overseas, which may include stocks or profits from the sale of a second home.
If a client is a non-dom and chooses not to pay tax in the UK on their overseas earnings, they must pay a significant annual charge of:
- £30,000 if they have been here for at least seven of the previous nine tax years
- £60,000 if they have been here for at least 12 of the previous 14 tax years.
It’s reported the chancellor’s wife paid £30,000 in order to retain her non-dom status.
The length of time your client has lived in Britain matters
Your client cannot claim non-dom status if they were born in the UK, their domicile of origin was in the UK, and they have been resident in the UK for at least a year since 2017.
There are strict rules around the length of time a non-dom resides in the UK, which could affect their tax status.
For example, if your client has been a UK resident for 15 out of the last 20 years, they will typically be seen as “deemed domicile” and can no longer claim non-dom status.
If your client is a UK citizen who has not lived in the UK for at least four consecutive years, they will typically no longer be seen as “deemed domicile”.
Be careful if your client is a “formerly domiciled resident”
The 2017 Finance Act introduced new regulations to determine if someone is a non-dom or not. It included a new category of deemed domicile called “formerly domiciled resident” (FDR).
If your client was born in the UK but switched their domicile to another country, they will be classed as an FDR. This means that if they return to the UK for anything more than a short period, they could lose all the tax benefits being non-dom provides.
Non-doms are typically not liable to Inheritance Tax (IHT) on overseas assets
Broadly speaking, as a non-dom your client would only be liable to IHT on assets located within the UK. Any overseas assets or money held in foreign bank accounts that does not originate from the UK, could be exempt from IHT.
When you consider that UK IHT is typically charged at 40%, being a non-dom could allow your client to leave significantly more to loved ones on death.
It’s why establishing domicile is a key part of the financial planning process, as it could mean the difference between a client paying IHT on just their UK assets, or all their assets irrespective of where in the world they are.
Get in touch
As you can see, the rules around non-dom are extremely complicated. As such, your client should speak to a financial planner who can confirm their situation and options to ensure they remain as tax-efficient as possible.
This is something we would be happy to help with, so if you or your client would like to discuss this further, please contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning specialist in financial planning and a VouchedFor Top Rated firm in 2022, you’ll have peace of mind that we’ll provide your client with the right advice and an excellent service.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
