Tax & Accounting News

Non-Dom

31/07/2008

A new tax regime for non-domiciles resident in the UK – first announced in Chancellor Alistair Darling’s pre-Budget report in October 2007 – came into effect in April 2008, although the rules were only finalised in July 2008. This briefing looks at what the changes mean for “non-doms”.

Who qualifies as a non-dom?

Individuals who are resident in the UK but are domiciled in another country. If you are in the UK temporarily, but were born overseas, or were born here but your father was born elsewhere, you are a non-dom.

How will non-doms be affected by the new rules?

From 6 April 2008, non-dom individuals resident in the UK for seven out of nine years must decide each tax year whether to pay UK tax on their overseas income and gains on the remittance basis of taxation or the arising basis of taxation.

Remittance basis of taxation means that your overseas income and gains will be subject to UK tax on the actual amounts remitted to the UK and all of your UK income and gains.

Arising basis of taxation means that you are subject to UK tax on all of your UK and worldwide income and gains. 

If non-doms opt for the remittance basis, they will need to pay HM Revenue & Customs (HMRC) £30,000 each year. This amount is not treated as a remittance provided it is paid directly to HMRC. 

The £30,000 charge is then treated as nominated income of the non-dom. There are ordering rules as to nominated income.

If overseas income is less than £2,000, the remittance basis of taxation does not apply and the £30,000 charge is not applicable.

What does this mean in practice?

Non-doms will need to decide whether the remittance or the arising basis of taxation is more cost-effective for their personal circumstances. Under the remittance option, a non-dom loses their personal allowances and annual capital gains tax allowance and will have to pay the £30,000 annual charge. This means that for some people, the arising basis may be preferable depending on their level of overseas income.

Non-doms also need to think about the tax-efficient use of bank accounts as using one account for different sources of income, such as income and gains, could prove costly under HMRC rules. When it comes to deciding which option is best, or how your bank accounts should be set up, it’s wise to talk to an accountant.

What about offshore trusts?

A UK resident but non-domiciled settlor of an offshore trust will be subject to UK tax on any income arising to the trustees. However, if the settlor opts for the remittance basis of taxation, then UK tax will only arise if the income is remitted to the UK.

What other issues do non-doms need to be aware of?

From 6 April 2008, there is a personal use exemption for shoes, clothes, jewellery and watches if they are brought to the UK for less than less than 215 days and cost less than £1,000. Therefore, any items acquired out of foreign source income and are in the UK for more than 215 days and cost more than £1,000 will be taxable in the UK as a remittance.

Non-doms who make gifts of overseas income or gains to their immediate family members after 6 April 2008 are treated as making a remittance to the UK. However, any gifts to children over the age of 18 are exempt.

If you would like more information on non-domicile issues, please contact our Head of Tax Martina Fitzgerald on 0208 446 9000.

 

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