Non Domicile Remittance

For individuals residing in the UK who are not domiciled there, this guide is intended to shed light on their unique tax circumstances. This includes an overview of the Remittance Basis of Taxation, among other issues pertinent to those of non-domiciled status in the UK.

If you’re categorized as a non-domiciled tax resident, typically, you’re a foreign national making your home in the UK. Although you may qualify as a tax resident, your domicile—or permanent home—is generally considered to be the country where you were born. Holding a non-domiciled status in the UK implies that your stay there has limitations.

Your tax residency status can evolve annually due to varying personal situations. It’s crucial to stay informed about the tax implications of your residency status. For this reason, consulting with an independent tax expert is crucial to navigate these waters effectively.

This article should not be the sole source of guidance for financial decisions concerning your non-domiciled status or tax position. To understand the nuances between residence and domicile, you would benefit from reading more detailed resources that distinguish these concepts.

Expat Wealth Adviser: Residence vs Domicile

Non-dom Tax Planning

If you’re living in the UK and are considered a non-domiciled resident, you can choose between two tax methodologies: the arising and remittance bases. Opting for the arising basis means you’re subject to UK taxes on your global income and gains at the time they are earned.

The Remittance Basis of Assessment for non-doms

Taxation for non-domiciled individuals in the UK follows the Remittance Basis of Assessment, where one can choose to be taxed on UK income and gains and foreign income and gains brought into the UK (remit). Starting April 2017, individuals born in the UK or long-term residents (residing for fifteen out of the last twenty tax years) are no longer eligible for the remittance basis and will be taxed on the arising basis.

Individuals can elect the taxation basis most beneficial for their circumstances each tax year. Claiming the remittance basis is free for the first six years of residency, with an annual charge called the remittance basis charge applicable afterwards.

The remittance basis charge is £30,000 for those resident for seven out of the last nine years, increasing to £60,000 for those resident for twelve out of the last fourteen years. Choosing the remittance basis may result in the loss of tax-free personal allowances and capital gains tax-free allowance, except when the total income and gains in a year are less than £2,000.

To claim the remittance basis, you must file a self-assessment tax return, as it is not granted automatically. Failure to do so will lead to tax authorities assuming that taxation is based on the arising basis, necessitating the declaration of worldwide income.

For UK resident non-domiciled individuals with foreign income and gains exceeding £2,000 per tax year, the choice between the remittance basis and the arising basis should be carefully considered each year based on tax efficiency. Seeking professional tax advice is recommended to ensure compliance with UK tax laws in this complex area. Foreign income includes investment income such as bank interest, dividends, pensions, and rental income, while gains may arise from the disposal of foreign assets like property or shares.

Non-dom UK Income Tax Rates

In the UK, three different income tax rates apply to an individual’s earnings within a tax year. These rates are set at 20% for income up to £50,270, 40% for income up to £125,000, and 45% for income exceeding £125,000 annually.

As a UK resident with a total income under £100,000 from all sources, you are entitled to a tax-free personal allowance of £12,570 for the tax years 2022/23 and 2023/24. This allowance ensures that the first £12,570 of your income is not subject to tax. However, you will not qualify for this allowance if you opt for the remittance basis and have foreign income or gains exceeding £2,000.

For non-domiciled UK residents, income tax may apply to worldwide earnings unless they choose the remittance basis of taxation and decide to keep foreign income offshore.

Non-dom Capital Gains Tax rates

In the UK, individuals are subject to three income tax rates based on their earnings in a given tax year: 20% for income up to £50,270, 40% for income up to £125,000, and 45% for income exceeding £125,000 annually.

If you are a UK resident with a total income below £100,000 from all sources, you are eligible for a tax-free personal allowance of £12,570 for the tax years 2022/23 and 2023/24. This allowance exempts the first £12,570 of your income from taxation. However, individuals who opt for the remittance basis and have foreign income or gains surpassing £2,000 are not entitled to this allowance.

UK resident non-domiciled individuals may be required to pay income tax on their global income unless they select the remittance basis of taxation and choose to keep their foreign income offshore.

Overseas Workday Relief

Overseas Workday Relief is a tax benefit available to non-domiciled individuals residing in the UK who opt for the Remittance Basis of Assessment and are employed by a UK company while working outside the UK. This relief exempts earnings from work carried out abroad for a UK-based business from UK taxation. One must use the Remittance Basis of Assessment to qualify for this relief and fulfil additional eligibility criteria.

UK Inheritance Tax for Non-dom Residents

Suppose you are a non-domiciled UK resident or not considered domiciled (having been a resident in the UK for less than 15 out of the last 20 tax years). In that case, you will only be subject to UK inheritance tax on assets in the UK. However, you will be liable for UK inheritance tax on your global assets upon becoming domiciled or deemed domiciled (having been a resident in the UK for at least 15 out of the last 20 years).

UK inheritance tax becomes payable when the total value of the deceased’s estate exceeds £325,000. Estates valued below this threshold do not incur inheritance tax, while any amount exceeding it is subject to a 40% tax charge. For instance, if an estate is valued at £400,000, there would be no inheritance tax on the first £325,000 but a 40% tax on the remaining £75,000.

Inheritance tax is levied on various assets, including property, shares, money, and other financial assets within the estate, gifts made to individuals within seven years of death, lifetime gifts to trusts and companies (with some exceptions), and certain assets held in trusts. Planning with the assistance of a tax advisor and financial planner can help mitigate UK inheritance tax liabilities.

Expat Wealth Adviser: UK Inheritance Tax

How do non-doms declare and pay Taxes in the UK?

In the UK, some individuals must complete a self-assessment tax return, where they report their taxable income and gains to HMRC before paying the due tax. It is the individual’s responsibility to inform HMRC of the need to file a tax return, not the other way around.

The tax year 2022/23 ended on April 5, 2023, and tax returns for income and gains earned during that year must be submitted and paid by January 31, 2024. Failing to do so may result in a £100 fine for late filing, which will increase the longer the return remains outstanding.

In certain circumstances, HMRC may investigate individuals for up to 20 years. Therefore, it is essential to keep records for as long as possible. Incorrect tax return submission could lead to fines and penalties of up to 100% of the total tax due, based on the individual’s behaviour and the reason for the underpayment.

Paying too much tax could result in a tax refund upon completing your tax return. Residents not domiciled in the UK with foreign income and gains exceeding £2,000 per tax year must also submit a tax return. It is vital to seek assistance to ensure correct completion and to avoid penalties or overpayment of UK tax.

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