The facts and myths surrounding non-dom status

By Clare Munro, Tax Partner

Non-doms have been in the news this week with lots of comment from all ends of the political spectrum. Lubbock Fine has many years of experience in dealing with non-domiciled taxpayers and, without taking any political angle, we thought it would be a good time to debunk some of the inaccuracies and myths that have recently been aired.

Non-doms don't pay tax on their total income - true or false?  

Firstly the concept of domicile in taxation is separate from tax residence. Residence is largely dependent on the number of days you are here in the UK whereas domicile can be thought of as your permanent home. Residence brings you into the UK tax net but domicile can dictate how you're treated once you're in.

The default income tax position for non-domiciled people who are resident here is UK taxation on worldwide income and many non-doms are actually taxed on that basis. It's therefore misleading to imply that all of them pay no tax on overseas income.

The UK is a light tax environment for foreigners

Our system is certainly benign for the first 7 years of UK residence – non-doms can elect to be taxed on UK income and overseas income brought to the UK, and the only downside is loss of personal allowances for income and CGT. But that still represents a loss of tax allowance so the election isn't a foregone conclusion.

After 7 years in the UK, non-doms are subject to the charges if they elect for the remittance basis, first at £30k then rising to £60k and £90k after 12 and 17 years respectively. According to the FT these charges raised £223m in 2012/13.

Some non-doms are actually British

People brought up here can claim non-domicile status if their father was non-dom too.  Such people would be likely to have to pay the top rate of charge in order to use the remittance basis, however.

Domicile always follows the father

This isn't strictly true as domicile of origin is inherited from one's mother if one's parents weren't married. It's also possible, though difficult, for British people to acquire a domicile of choice elsewhere by cutting ties with the UK.

One can acquire an overseas domicile by buying a burial plot there

This myth is derived from one of the tests used by HMRC in the past. A change of domicile away from the UK requires that the individual cut ties with the UK to demonstrate a desire to settle permanently elsewhere. Purchase of a burial plot abroad is one of the examples that HMRC has given of ways in which the desire to settle abroad may be evidenced. With the growth in cremations it must be of limited relevance now.

Abolishing non-dom status will raise millions

To be worth the upset it needs to raise more than the remittance charges produce now, and estimates of the increase in revenues for the UK vary from billions to negative. At the margins, some non-doms may base themselves elsewhere or stay for shorter periods to avoid becoming UK resident.  However, even if they stay and pay tax on worldwide income it's likely that they will have paid tax abroad on some of that overseas income. They would usually get relief in the UK for overseas tax paid, so in those circumstances no additional UK tax would be due.

The UK's non-dom perks are unique

Whilst the remittance basis in the UK is unusual it's not unique: Ireland and Malta offer something very similar and several other countries including France, Portugal and Israel offer tax holidays for new residents.

 

To discuss any of the issues covered in the blog, please feel free to email me.

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