UK Tax Advantages for ‘Non-Doms’

19th February ‘19

Having a domicile of origin outside the UK (a so called ‘Non-Dom’) confers important tax advantages for UK tax residents. It enables a foreign domiciliary to claim the remittance basis of taxation in relation to foreign income and gains, as well as establish trust and other arrangements which confer long term inheritance tax benefits.

What is domicile under English law?

Domicile is not the same as tax residency, habitual abode, citizenship or nationality. It is the legal jurisdiction that is most closely linked to a person. It is generally acquired on birth from a child’s father as a domicile of origin but can be replaced by other forms of domicile, such as a domicile of choice when an individual moves to another state with the intention of remaining there permanently or indefinitely.

Why is domicile so important?

Having a domicile of origin outside the UK enables an individual who is UK tax resident to claim the remittance basis of taxation in relation to foreign income and gains if they choose to do so. This method of taxation means that foreign income and gains will only be taxed in the UK where they are brought into, used or enjoyed in the UK. This can provide significant protection from UK tax.

Recent decisions before the courts

There have been a number of recent cases where the Courts have ruled that individuals who were born outside the UK have acquired a domicile of choice here. The importance of these decisions is that they have a bearing on the way that the UK tax authorities will review claims made by UK residents that they are domiciled outside the UK.

What are the tax advantages potentially at risk?

Loss of a foreign domicile would put at risk the continuing availability of the remittance basis, but more importantly for long term UK resident non UK domiciliaries who are now deemed domiciled here, the consequences can be more important.

Wealthy families often establish offshore trust based holding structures. Once the settlor is deemed domiciled these often become protected settlements enjoying long term tax advantages. These will be lost should the settlor become legally domiciled within the UK.

In the case of U v J [2017] EWHC 449 (Fam) the court granted a wife permission to bring a petition for divorce. She had lived in England only very temporarily initially as a student and then for about one year in 2001-2002, more than 15 years ago. That was enough for her to acquire a domicile of choice in England.

The case of Proles v Kohli [2018] EWHC 767 (Ch) is a more recent case where a mistress brought a claim on behalf of her daughter where Mr Kohli had failed to provide for her daughter under the terms of his Will.

The competing pressures in such cases have influenced the family courts to look more sympathetically on claims that someone had acquired a domicile of choice within England and Wales.

This case law has increased the risk that a long term UK resident non UK domiciliary might be held to have acquired a UK domicile of choice there.

It is becoming vital to check that non UK domicile has been retained, and properly evidenced as it is becoming increasingly common for the UK tax authorities to investigate cases where they consider a foreign domicile has been lost. The consequences of failing to retain a legal domicile outside the UK can be serious.

If you would like to discuss UK tax advantages for ‘Non-Doms’ further, please contact Craig Kemsley (e) ck@calibrate-law.com (t) 0203 988 2020

This paper is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.

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