Non-domiciled individuals, commonly referred to as 'non-doms', reside in the UK but do not consider it their permanent home. This status can offer certain tax benefits, particularly regarding foreign income and gains.
Determining Domicile Status
Typically, your domicile is the country your father regarded as his permanent home when you were born. This status can change if you move abroad with no intention of returning to your original domicile.
Tax Responsibilities for Non-Domiciled Residents
Non-doms may not be required to pay UK tax on their foreign income or gains under specific conditions:
- Your foreign income and gains total less than £2,000 within the tax year,
- You do not bring these amounts into the UK, for instance, by transferring them to a UK bank account.
If these conditions apply to you, no action is required concerning UK tax.
For Foreign Income Over £2,000
If your foreign income exceeds £2,000, you must report it to HMRC, typically through a Self Assessment tax return, and pay the necessary tax. At this point, you're faced with a choice: either pay UK tax on this income or opt for the 'remittance basis'.
The Remittance Basis allows you to avoid UK taxes on your foreign earnings unless you transfer them to a UK account. This option means you're only taxed on your UK income and any foreign income or gains brought into the UK.
Choosing the remittance basis means:
- You forfeit your tax-free allowances for Income Tax and Capital Gains Tax,
- You must pay an annual charge to maintain your non-domiciled status, starting at £30,000 for non-doms in the UK for at least 7 of the preceding 9 tax years.
It's important to note that you can choose annually between paying tax on your foreign income or claiming the remittance basis, depending on which is more tax-efficient for you in a given year.
