The UK offers a generous tax relief to non-UK domiciliaries.
If you are resident but not domiciled or deemed-domiciled for tax purposes in UK you may not be subject to UK tax on foreign investment income and gains.
This beneficial regime is known as the Remittance Basis of taxation.
Generally speaking, non-UK domicilaries who opt for the Remittance Basis can keep their foreign income and gains free of UK tax unless they are remitted to the UK.
To benefit from the Remittance Basis regime a claim must be made. This is usually made on the tax return that must be filed with HMRC annually.
There are some costs associated with making a claim. Opting for the Remittance Basis results in the loss of the personal allowance and annual exemption for capital gains tax in the financial year the claim is made. Furthermore, dividends remitted to the UK are not taxed at the dividend rates.
Therefore, it is important to weigh the benefits and costs of a claim on an annual basis before making the election.
It is important to note that the Remittance Basis does not shield from tax all income and gains derived from foreign situs assets but it only applies to items included in the definition of ‘foreign income and gains’.
The definition of remittance is broad and includes money brought to the UK but it also includes goods bought abroad, services provided in the UK but paid with foreign income or gains, the repayment of loans and in some situations even gifts.
If a non-domiciled taxpayer wants to use this regime after being resident in the UK for seven out of the preceding nine tax years a charge must be paid.
The charge is called the Remittance Basis Charge and amounts to £30,000 in the first case or £60,000 if the non-UK domiciliary has been resident in the UK for at least 12 out of the previous 14 financial years.
Before becoming resident in the UK it is essential to take the right steps to optimise your financial affair and take full advantage of this regime.
A person who is resident in England and Wales and non-UK domiciled, or deemed domiciled, under English common law principles can benefit from this regime.
An individual who comes to the UK and has his sole or main home in the country acquires a UK domicile unless he or she does not have the intention to reside there permanently or indefinitely.
Under common law, an individual can have only one domicile at any time: a domicile of origin, a domicile of choice or a domicile of dependency.
The non-dom regime is not available to deemed domiciled individuals.
Generally speaking an individual can claim the remittance basis in every tax year where he or she is not domiciled in the UK for tax purposes.
Therefore the non-dom regime is not available indefinitely and deemed domiciled individuals are excluded from it.
A deemed domiciled status is acquired when an individual has been UK resident for 15 out of the previous 20 tax years.
From that point he or she will be subject to tax in the UK on his worldwide income and gains.
Trusts may still offer tax-favoured treatment after an individual becomes deemed domiciled but they must be carefully and timely structured.
Individuals born in the UK with a UK domicile of origin who live abroad will also acquire the deemed domiciled status in the first or second year after returning to the UK.
If you claim the remittance basis and live and work in the UK you could benefit from the so called Overseas Workday Relief on earnings attributable to duties performed outside the UK.
The relief exempts those earnings from income tax unless remitted to the UK.
The relief is only available to non-domiciliaries and it is limited to the first three years of residency in the UK.
Tax residence, the remittance basis regime and domicile areas of taxation are complicated. You could face significant unfunded tax liabilities and penalties if you do not correctly take care of your residency status and tax position. This includes ensuring you are paying the correct tax in the UK.
If you are considering moving to or leaving the UK, we can assist you with expert guidance on how best to structure your affairs.
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Don't hesitate to contact our expert non-domicile tax team to discuss our range of services and how we can assist you further.