UK tax advantages for inbound non-doms

16th December ‘20
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Context

Having a domicile of origin outside the UK (as a so called ‘Non-Dom’) confers important tax advantages for individuals who become 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 at birth from a child’s father as a domicile of origin.

Why is domicile so important?

Having a domicile outside the UK enables an individual who becomes UK tax resident to claim a privileged method of taxation which is only available to them.

The remittance basis of taxation generally means that foreign income and gains will only be taxed in the UK when they are brought into, used or enjoyed in the UK.  This can provide significant and enduring savings of UK income tax and capital gains tax.

Furthermore, individuals who have a domicile outside the UK are generally subject to inheritance tax only on their UK situated assets.  Foreign assets are outside the ambit of UK inheritance tax (except for offshore wrappers holding UK real estate interests).

Remittance Basis Charge (RBC)

After a certain period of UK tax residency, there is a charge to adopt the remittance basis of taxation. The RBC is £30,000 when you have been UK tax resident in at least seven out of the preceding nine UK tax years.  The

RBC rises to £60,000 if you have been UK tax resident in at last 12 of the

Deemed UK Domicile

Once you have been UK tax resident at any time during 15 out of the previous 20 UK tax years, then the remittance basis will no longer be available to you and you will be deemed to have a UK domicile for UK tax purposes.  Before that time, an offshore trust may be established which should protect assets from UK capital gains tax on worldwide gains and from UK income tax on foreign source income and such assets should be outside the scope of inheritance tax (except for UK real estate interests).

Pre-arrival planning

Before acquiring UK tax residency, a non-dom may designate clean capital to a separate offshore bank account.  These funds may then be remitted to the UK at any time after the individual acquires UK tax residency free of UK income tax and capital gains tax.

In addition, consideration should be given to offshore assets which may be re-based for UK capital gains tax purposes in order to wash out historical gains.

How we can help

Our dedicated tax team has extensive experience in assisting Non-Dom clients with their estate planning as well as advising on other tax efficient strategies.

If you would like to benefit from our services and discuss suitable options that work for you, please contact ck@calibrate-law.com

 

This post is intended to be a guide 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. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in these publications.

 

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