Non-UK Domicile Status: What’s the Deal?
The public profile of non-dom status in the UK has been given a boost in recent weeks with the recent and protracted scrutiny of the tax affairs of Akshata Murty, wife of UK chancellor Rishi Sunak. The criticism died away only when Murty finally caved in to pressure and announced she would now pay UK taxes on her foreign income.
Enjoying non-UK domiciled status to mitigate tax liability is not illegal – unlike tax avoidance and evasion. Non-dom status is attractive – if you’re one of the high net worth individuals who would benefit. For the rest of us, it’s essentially a concept that has little practical meaning.
What is non-dom status?
The rules around domicile are complex (and not to be confused with ‘residence’ – which refers to the shorter term location of where you live). Domicile is a longer-term issue and refers to the country that you consider your permanent home or with which you have a primary connection.
An individual who chooses to be registered as domiciled in another jurisdiction will benefit from special HMRC tax rules in relation to their foreign income. They will pay no UK tax on income or gains earned abroad, unless they bring that cash into the UK; nor will their estate have to pay inheritance tax on foreign assets if the individual was domiciled elsewhere at the date of death.
It’s worth noting, however, that the rules of succession in the country of domicile may be different to those in the UK. This means that it could affect how the individual would ideally want to distribute their property and assets on death – these are important considerations for anyone thinking about opting for non-dom status.
Qualifying for non-dom status
UK residents who have a permanent home (or otherwise, ‘primary connection’) in a different country, may be able to choose their domicile as that country. Usually, it would be the place where the individual’s father considered their permanent home at birth.
In Murty’s case, India is her parents’ home country, allowing her the choice of non-dom status – saving her millions of pounds in tax in doing so.
As well as having a primary connection to the other country:
· The individual must be able to actively demonstrate to HMRC that their domicile is not the UK
· They must intend eventually to return to the stated country of domicile
· They must specifically apply for tax exemption if foreign income exceeds £2,000
Non-UK domiciled status also comes at a price. If the individual has lived in the UK for more than 7 out of the previous 9 tax years, they will have to pay an annual sum of, initially £30,000 rising to £60,000 a year after 12 years.
And being a ‘non-dom’ is not a permanent arrangement with HMRC – it is only ever intended to be a temporary tax break. The individual’s non-dom status will eventually end when they have been in the UK for 15 years out of the previous 20 tax years – from which point UK taxes will be levied on all income earned.
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