Non-Domicile & the Remittance Basis: At a glance

What is Domicile? Does it have tax advantages? What is the Remittance Basis. When does it apply for Non-Domiciled individuals?

This is a freeview 'At a glance' guide to Domicile and the Remittance basis

Subscribers see Non-domicile status, deemed domicile & tax and Remittance basis (overseas income).

What it means to be non-UK domiciled (non-dom)

• Domicile can be considered a person's 'place of belonging' for tax purposes.
• It is a separate concept from a person's tax residence status. 
• An individual who is non-UK domiciled may have tax advantages compared to being UK domiciled, as a person's domicile status can limit their liability to UK Income Tax (IT), Capital Gains Tax (CGT) and Inheritance Tax (IHT). 
• Where a person is not UK domiciled:
  • The remittance basis may limit their IT and CGT Liability. 
  • Their non-UK situs assets may be outside the scope of IHT. 

What determines a person’s domicile?

Your domicile is initially determined according to the domicile of your father, but other factors may change your domicile status. See Non-domicile status, deemed domicile & tax for what factors are considered here.

As of 6 April 2017 there are effectively four types of domicile:

• Domicile of origin: the default domicile of an individual at birth.
• Domicile of dependency: a minor’s domicile is that of their parents.
• Domicile of choice: where you take steps to adopt a new permanent home.
• Deemed domicile: from 6 April 2017, this applies to IT and CGT as well as IHT.

Domicile of origin

• Everyone starts with a domicile of origin. If your parents were:
  • Married: this is the domicile of your father.
  • Unmarried: this is the domicile of your mother.

Domicile of dependence

• Your domicile, as a minor under 16, may change from your domicile of origin, if your parent establishes a permanent domicile of choice in a different country.
• For adults, women married before 1 January 1974 automatically acquired the domicile of their husband.

Domicile of choice

You can acquire a domicile of choice after the age of 16 if you decide to settle in or move permanently to a different country other than that of your domicile of origin.

• If you are non-dom and come to the UK permanently you are likely to acquire a UK domicile of choice.
• If you were born outside the UK when your father was UK domiciled, and you live in the UK, see Non-domicile status, deemed domicile & tax to determine what your domicile position will be. 
• If you establish a domicile of choice but abandon it without acquiring a new domicile of choice, your domicile reverts back to your domicile of origin.

What if I am non-dom but I was born in the UK?

• If you were born in the UK and your father was non-dom (giving you a non-UK domicile of origin) you will be non-dom too unless you have always lived in the UK, or you decide to settle permanently in the UK.

How do the new deemed domicile rules work?

Prior to 6 April 2017, you could only become deemed UK domiciled for IHT. From 6 April 2017, you can be deemed domiciled for Income Tax and CGT. 

• If you are deemed domiciled you are liable to UK tax on all of your worldwide income and gains, and subject to IHT on all of your worldwide assets, subject to any overriding clause in a double tax treaty, particularly if the treaty was negotiated before the introduction of IHT. See Non-domicile status, deemed domicile & tax for a list of which countries this applies to.
• Non-domiciles are treated as deemed domiciled for IHT, CGT and Income Tax once UK resident for 15 out of 20 years.
  • Previously, for IHT only, the threshold was 17 out of 20 years.
• If you were born in the UK, with a UK domicile of origin, you are treated as domiciled in the UK if you are UK resident.

 For the purposes of establishing deemed domicile:

• All years of UK residence are counted, including those during which you are under 18.
• Years where you become or cease to be UK resident will also be counted (Split years).
• Children will not acquire a deemed domicile from their parents.

What if I am deemed UK domiciled and I leave the UK?

If you are deemed domiciled under the 15 out of 20 years rule:

• Your deemed domicile status falls away for IHT purposes once you have been non-UK resident for more than four consecutive tax years or have permanently left the UK to establish a domicile of choice elsewhere.

I am a returning non-dom, how am I affected?

If you had a UK domicile of origin at birth, left the UK and acquired a domicile of choice elsewhere and then you return to the UK:

• For IT and CGT, UK domicile is deemed to resume immediately on your return to the UK; there is no period of grace.

For IHT there is a grace period from 6 April 2017, UK domiciled status is reacquired for a particular tax year if:

• You are UK resident in that tax year, and
• You were UK resident for one of the previous two tax years.

See Non-domicile status, deemed domicile & tax for the IHT implications of reacquiring UK domiciled status.

What if I then leave again?

If you are a returning non-dom and then leave the UK again, exactly when you lose your deemed domicile status depends on how long you were UK resident for. See Non-domicile status, deemed domicile & tax

Changing your domicile

• It is not easy for a UK domiciled person to become non-dom: it requires a permanent move abroad.
  • See Non-domicile status, deemed domicile & tax for how to prove that you have changed your domicile.

Rebasing for CGT

The offshore assets of individuals who became deemed domiciled on 6 April 2017 are subject to optional rebasing to market value on 5 April 2017; only gains after April 2017 are subject to CGT.

• Rebasing is only available to certain individuals in particular circumstances. See Non-domicile status, deemed domicile & tax
• Rebasing is automatic. An irrevocable election can be made to disapply the rebasing on any particular asset. This election is made at the time of disposal.

How do the recent changes affect UK residential property held by offshore structures?

From 6 April 2017:

• The excluded property rules for IHT have changed and individuals and trusts who own UK residential property through an offshore Close company or partnership will pay IHT on the value of such UK property.
• Where the company shares are held by a trust, Ten-year charges and Exit charges may apply to the UK property value.

See Offshore Company holding UK Residential Property: tax issues.

What is the remittance basis?

• The remittance basis is an alternative basis of taxing foreign income or gains.
• It only applies to you if you are UK resident but not domiciled or not deemed domiciled in the UK and you have foreign income or gains in a tax year.
• Under the remittance basis, you can choose whether to be taxed in the UK on your income and gains worldwide as they arise (by default) or to be taxed only on the amount of foreign income and gains that you actually bring in, or remit, to the UK.
• When you choose to use the remittance basis you must pay a Remittance Basis Charge (RBC), unless you meet certain conditions. See Remittance basis (overseas income) for more details.

The RBC:

• If you are resident in the UK for 7 out of the previous 9 tax years, the RBC is £30,000.
• Non-doms resident in the UK for 12 out of the past 14 years pay a charge of £60,000.
• Up to 5 April 2017 non-doms resident in the UK for 17 of the previous 20 years, paid a charge of £90,000. The deemed domicile rules have made this RBC redundant from 6 April 2017.

If you use the remittance basis you lose your entitlement to a UK personal allowance and CGT annual exemption.

What is cleansing relief?

Cleansing relief applies if you acquired deemed domicile on 6 April 2017 under the 15 out of 20 years rule and had been claiming the remittance basis.

• All remittance basis users had a two-year period to 5 April 2019 to rearrange their mixed funds and separate them into clean capital, foreign gains and foreign income. 
• A nomination is required to record the source of the amounts transferred; if it is not possible to distinguish income from gains, unascertainable amounts are deemed to be income.

HMRC examples of cleansing can be found here.

Comparison of rules pre and post-April 2017

See Subscriber guide: Non-domicile status & tax

Useful guides on this topic:

Non-domicile status, deemed domicile & tax
Who is non-UK domiciled? What does this mean for UK Income Tax, Capital Gains Tax and Inheritance Tax? What reliefs are available to non-doms?

Remittance basis (overseas income).
What is the remittance basis? Who can claim it and when? What are the advantages of claiming the remittance basis and how much is the remittance basis charge?

Offshore Company holding UK Residential Property: tax issues
Is it still worth holding UK property via an offshore company? How are these properties taxed? Should I bring my offshore company into UK corporation tax? What are the tax issues of repatriation?

SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?