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When does someone have to become a non-dom for tax purposes?

Tax rules: if I don't spend enough time in the UK, do I have to become a

I have been informed that I do not spend enough time in the UK to be domiciled there for tax purposes.

I complete my self-assessment every year and have a unique tax reference and national insurance number. What are the rules regarding this situation?

Tax rules: if I don't spend enough time in the UK, do I have to become a

Tax rules: if I don’t spend enough time in the UK, do I have to become a “non-dom”?

Heather Rogers responds: I was delighted to receive a question about home, as it is a hot topic and very misunderstood.

What does Home mean?

Common law assigns a domicile of origin to every individual from birth.

This is normally determined by their parents – their father or, in the case of a single mother, their mother’s domicile – and it may be different from the individual’s place of birth.

This is called the “domicile of origin”. A person is domiciled in the UK for example if their parents were born in the UK.

A person may instead have a ‘domicile of choice’ which is more complicated.

This normally means that, for example, you make the UK your permanent residence and give up your original home elsewhere.

However, it is not necessarily a straightforward process to have a domicile of choice.

The third domicile is known as “deemed domicile”, and this only applies to your tax situation and is based on the number of years of residence in the UK.

There is also the “domicile of dependency” which is that which the law assigns to an individual because of his legal incapacity and his legal dependence vis-à-vis another person.

HEATHER ROGERS ANSWERS YOUR TAX QUESTIONS

Is the domicile identical to the tax residence?

No, these are two completely separate topics.

You can become a tax non-resident but not a “non-dom”.

Tax residency is based on a person’s presence in the UK during the tax year for a certain number of days, while domicile relates to a person’s long-term domicile.

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Having a UK passport does not necessarily mean that you are domiciled in the UK, but it is an indication of someone’s intention to spend the rest of their life in the UK.

However, on its own, it does not confer domicile. Domicile is different from nationality.

Here you will find details of tax residency and how you will be taxed as a non-resident, as opposed to domicile.

How does the tax system work for UK ‘doms’ and UK ‘non-doms’?

1. Persons who are both UK domiciled and UK resident for tax purposes are taxed in the UK on their income on a ‘triggered’ basis.

This means they pay UK tax rates on their income wherever it occurs in the world.

They may be entitled to relief on any tax already deducted by a foreign tax authority, but they still have to declare it on their UK tax return. This also applies to capital gains.

2. If you are tax resident in the UK, but have a domicile elsewhere (you are a ‘non-dom’), you do not pay UK tax on foreign income or gains if both of the following conditions apply:

– Income/gains are less than £2,000 in the tax year

– You do not bring it to the UK, for example by transferring it to a UK bank account

But, if the income is £2,000 or more, you can either:

– Pay UK tax on it – you may be able to make a claim, OR;

– Claim the “basis of installment”. This means that you only pay UK tax on income or gains you bring into the UK, but you lose any non-taxable allowances for income tax and capital gains that you may have had right.

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In addition, you also pay an annual fee depending on the length of your residence in the UK.

You pay an annual fee of:

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– £30,000 if you have been here for at least seven of the previous nine tax years

– £60,000 if you have been in the UK for at least 12 of the previous 14 tax years.

Since a non-dom has to pay up to £60,000 a year, this is only advantageous if your foreign income is significant.

Non-doms remain liable to UK tax on any income derived from the UK itself.

Domicile rules also affect inheritance tax and how your estate is taxed.

Details of non-domiciled residents can be found here.

How does a person become domiciled in the UK or lose their status?

If you are originally domiciled in the UK but move abroad to settle in another country, once back in the UK you are deemed to be domiciled in the UK for tax purposes on returning to the UK and for inheritance tax at the start of the second year of returning to the UK.

This is called formerly domiciled residence status.

You can lose your domiciliary status if you leave the UK and there are at least six tax years as a non-UK resident in the 20 tax years preceding the relevant tax year.

If you are not domiciled by origin in the UK and you are not domiciled in the UK by choice, then you may be domiciled under “deemed domicile”.

A person becomes deemed domiciled after 15 years of UK residence, then the ‘discovery’ basis will apply – which as explained above means you pay UK tax rates on your income, where to happen in the world.

What about your situation?

I don’t have the details of your situation, but hopefully this will give you a brief guide to how the UK domicile rules work for tax purposes and help you decide what to do next.

As you can see, domicile is a complex area both from a legal and tax point of view. Expert advice should be sought from a solicitor and tax adviser with expertise in this area who are based and regulated in the UK.

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Ask a tax question to Heather Rogers

Tax expert Heather Rogers answers questions from our readers

Tax expert Heather Rogers answers questions from our readers

Heather Rogers, founder and owner of Aston Accountancy, is our tax columnist. She is ready to answer your questions on any tax topic – tax codes, inheritance tax, income tax, capital gains tax, and much more.

If you would like to ask Heather a tax question, email her at taxquestions@thisismoney.co.uk.

Heather will do her best to respond to your message in an upcoming monthly column, but she won’t be able to reply to everyone or correspond privately with readers. Nothing in his answers constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will remain confidential and will not be used for marketing purposes.

If Heather is unable to answer your question, you can find out about getting tax help here, including sources of free professional advice if you are elderly and/or on a low income.

You can also contact MoneyHelper, a government-backed organization that provides free assistance on financial matters to the public. His number is 0800 011 3797.

Heather gives tips on how to find a good accountant here, including when to ask for help, hiring the right type of company, and typical costs.

Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any business relationship to affect our editorial independence.

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