A person’s domicile can be extremely complicated to determine and can be separate from their residency or nationality.
Domicile of origin is acquired at birth and, as a general rule, a person takes their father’s domicile.
However, domicile may subsequently be changed to a domicile of choice, which is based on the location of a person’s permanent home.
Assuming UK residence, non-doms pay income tax on their worldwide income. However UK-based non-doms can elect to pay income tax on the remittance basis.
This was originally introduced to allow those who owned property in the empire and British colonies only to be taxed when they brought their wealth back to the UK, according to Neil Jones, technical manager at Canada Life.
Mr Jones says this is now considered to be a tax-break that is being abused, similar to business property relief.
Today the UK allows non-doms to pay a charge to HMRC and in return they will only pay income tax on the income that they remit into the UK.
UK-based non-doms do not pay tax on foreign income if it is less than £2,000 in the tax year and it is not brought into the UK, and for some there can be a considerable difference between worldwide income and UK income.
The remittance charge that they pay depends on how long they have been resident in the UK.
The charges from 6 April 2015 are: resident for seven out of the last nine tax years is £30,000, resident for 12 out of the last 14 tax years is £60,000 and resident for 17 out of the last 20 tax years is £90,000.
For inheritance tax, when a non-dom dies they only pay inheritance tax on the assets they have situated in the UK, unlike those who are UK domiciled or deemed domicile who are liable to inheritance tax on their worldwide assets.
Unlike income tax there is already a deemed domicile rule meaning that, with a few exceptions, once a non-domicile is resident in the UK for 17 out of 20 tax years, they will be treated as being domiciled in the UK for inheritance tax purposes.
When a UK domiciled person leaves their estate, or part of it, to a non-UK domiciled spouse on death (or gifts to them during their lifetime) the spousal exemption is not unlimited - it is a cumulative total of £325,000 during life and on death.
In addition, those who had a domicile in the UK at the date of their birth will revert to having a UK domicile for tax purposes whenever they are resident in the UK, even if under general law they have acquired a domicile in another country.
