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

The non-doms who come to the UK undoubtedly create jobs and contribute to our economy, institutions and the arts. The remittance basis is not just the preserve of the wealthy. There is no charge for claiming it in the first six years of UK residence. It is therefore widely available for all sorts of international workers who come to the UK temporarily, including those who work in IT, tech, the NHS and finance industry.

Many non-UK domiciled individuals, like Murthy, were born outside the UK, to parents who lived outside the UK. Many were also educated outside the UK and have the majority of their assets located outside of the UK. Murthy considers India her home and has explained, as is customary in traditional Indian families, that she intends to return to India to look after her parents. She, or more likely her accountant, simply ticked the relevant box that applied to her.

 

While Murthy is a private citizen, as the wife of the chancellor she has been subjected to a higher level of scrutiny than other famous non-doms. Over the years, these have included Mark Carney, the former governor of the Bank of England, and Daily Mail owner Jonathan Harmsworth.

For non-doms coming to the UK from another country, usually their pre-UK residence funds are treated as 'clean capital' – essentially funds that do not suffer any UK tax, even if they are remitted to the UK. Any post-UK residence growth on those funds, for example interest earned in a bank account or dividends and gains if the clean capital is invested, is subject to tax, if remitted.

Ideally, before non-doms arrive in the UK, they seek advice on setting up segregated bank accounts so as to separate out income, the proceeds of disposals of assets and clean capital. In this way, they can choose to remit funds from the account offshore which triggers the least amount of tax (until the clean capital is depleted).

Drawbacks of non-dom status

There are some drawbacks to claiming the remittance basis, including: the loss of UK personal allowances for capital gains and income tax; a higher rate of tax on foreign dividends remitted to the UK; and potential restriction of the availability of foreign losses.

Once an individual has been UK resident for seven (out of the previous nine) tax years, they are obliged to pay a £30,000 annual remittance basis charge. At this point, it only makes sense for those with sufficient foreign income and gains that will not be remitted to the UK to keep claiming.

For example, this may apply for an additional rate (45 per cent) taxpayer with taxable income in excess of £150,000 and at least £67,000 of further income or at least £150,000 of capital gains.