Tax  

What exactly is a non-dom?

  • Describe how the non-dom status works
  • Identify who it applies to
  • Explain the restrictions and charges of being a non-dom
CPD
Approx.30min
What exactly is a non-dom?
Credit: Pexels

A non-UK domiciled person (also known as a non-dom), in very simple terms, is someone who does not have the intention to reside permanently or indefinitely in the UK.

While there are different categories of non-doms, they all share the key element that the relevant individual intends to not be permanently based in the UK.

The legal definition of a non-dom has also evolved over time, with most recent changes restricting those who can benefit from non-dom status being enacted in 2017.

The basis of taxation 

A hot topic of late has been the non-dom status of the chancellor’s wife, Akshata Murthy, and the consequential tax implications. Murthy has not partaken in any illegal tax scheme. However some MPs have argued against ministers' partners from claiming non-dom status, calling it a tax loophole. 

The UK tax system consists of two bases of taxation for UK residents:

  1. Worldwide taxation on an arising basis (the basis on which the majority of UK residents pay tax); or
  2. The remittance basis of taxation, only available to qualifying non-doms who claim it in their tax return.

In broad terms, under the remittance basis of taxation, a qualifying non-dom is only taxed on UK source income (such as UK employment, UK rental income and UK dividends) and gains (disposals of assets located in the UK).

 

 

 

 

 

They are only taxed on their non-UK source income and gains if they 'remit' (use or enjoy in the UK) foreign income and gains to the UK. Any foreign income and gains they do not need to remit, are sheltered from UK tax. The un-remitted foreign income and gains (kept offshore) do not need to be disclosed to HM Revenue & Customs in a year where the remittance basis is claimed. This can greatly simplify the tax affairs of internationally mobile individuals.

Claiming the remittance basis involves ticking the relevant boxes on your tax return. It is not regarded by HMRC as tax avoidance. Provided an individual qualifies, by claiming the remittance basis they are placing themselves firmly within the rules.

Legacies of empire

Non-doms have been using the remittance basis in the UK since 1914, but the concept of domicile goes back a lot further. It was used in colonial times to differentiate between the British who only temporarily lived and worked in India to support the British Empire, and those who had permanently settled in India.

The number of Indians claiming non-dom status has increased in recent years. It is perhaps fitting that a concept used to protect British colonial interests in India is now being used by wealthy Indians in the UK.

The archaic nature of domicile goes some way to explaining why the test for determining an individual’s domicile of origin revolves around whether your parents were married at the time of your birth, in which case you inherit your father’s domicile.

Non-dom nurses and high-profile private citizens

It is important to note that the remittance basis has survived successive Labour and Conservative governments. The reason for its continued existence is the same reason Italy and the Netherlands offer a favourable tax regime for people who want to relocate there; we want to attract talent and investment.