Taxation of Non-Doms

Newsletter issue - June 08.

There has been much discussion in the quality newspapers about the taxation of wealthy non-doms, but what does that mean?

A person is non-domicile (non-dom) if they have a domicile of a country outside of the UK. Your domicile is not the same as your nationality or residence. It is the country that is your real or permanent home. This is generally the country your father considered to be his home country at the time of your birth. If you were born in the UK but your father was South African you have probably inherited the South African domicile of origin of your father. If you never intend to live in the country of your domicile of origin and you make your permanent home in the UK, the Taxman may assume you have chosen a UK domicile and have abandoned your domicile of origin.

Having non-dom status has some advantages for UK tax purposes, but many of those advantages have diminished since new tax rules were introduced on 6 April 2008. The main advantage was that income and gains you make overseas were not taxed in the UK unless you brought those funds into the UK. This is called the remittance basis.

The remittance basis can still apply for you if you are non-dom in three separate circumstances:

1. You have less than £2,000 of overseas income and gains per year.

2. You have lived in the UK for less than 7 out of the previous 9 tax years and you claim the remittance basis.

3. You have lived in the UK for more than 7 out of the previous 9 tax years and you pay an annual tax charge of £30,000 to be permitted to claim the remittance basis.

Remember, using the remittance basis means you can protect your overseas income from UK tax. Without the remittance basis you must declare all of your overseas income and gains on your UK tax return and pay UK tax on those funds even if they have already been taxed in another country, and have not been brought into the UK. Some relief for foreign tax paid may be possible. However, if you do claim the remittance basis for a particular tax year you will lose your UK personal allowances and annual capital gains allowance for that tax year.

This is a very complex area of tax law, so we need to discuss your personal situation before we can advise you fully.

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