Residence and domicile tax planning

If you’re coming to or leaving the UK for a period of time, ensuring your tax affairs are in order can require expertise across multiple jurisdictions.

Residence And Domicile Planning

Some of the issues you might face as a non-UK domiciled tax resident either in the UK or overseas include complex tax filing in an unfamiliar jurisdiction, staying on top of rule changes and the structure of remittances.

Planning ahead for your financial needs while in the UK can make a significant difference to your UK funding needs. Early advice (ideally pre-arrival) is therefore very important.

If you are planning to remain in the UK for the long term, it is also important to plan ahead for the point at which you will become ‘deemed’ UK domiciled. In these circumstances, inheritance tax planning is especially relevant.

Meeting your needs

Specialist

Our highly qualified team of specialists advise on the organisation of financial affairs, tax efficiency and tax reporting obligations for those coming to the UK, those planning long-term residence, or those leaving the UK.

Bespoke

We don’t provide 'off-the-peg' solutions – all of our advice is carefully tailored to your specific tax needs.

Global

As members of Nexia International, we can ensure that UK planning is compatible with the jurisdiction of your country of domicile and any other countries in which you have financial interests.

Collaborative

We work closely with your existing advisers, such as onshore and offshore lawyers, investment managers and property agents.

How we can help

If you’re coming to the UK

  • Pre-arrival planning: Advising on the tax-efficient organisation of your financial affairs to help you manage you and your family’s financial needs while living in the UK.
  • Tax relief: Advising on the potential UK tax reliefs available if you’re coming to the UK to work for a temporary period and liaising with your employer to ensure that your employment qualifies for these reliefs, including checking your employment contract.
  • Property: Advising on the implications, structuring and funding of UK property ownership.
  • Inheritance tax: Advising on inheritance tax implications if you’ve been in the UK for several years or have settled in the UK permanently.
  • Offshore assets: Advising on existing structures and planning for offshore assets.
  • Remittances: Structuring of remittances to enable tax-efficient movement of capital to the UK.

If you’re leaving the UK

  • Pre-departure planning: Advising on the tax-efficient organisation of your financial affairs to help you manage you and your family’s financial needs while living outside the UK.
  • Compliance: Helping you get advice on the destination country’s tax legislation and advising on how this interacts with UK tax legislation and assisting with any ongoing UK tax reporting obligations should you leave the UK to work.
  • Property: Advising on letting your UK property while you’re outside the UK, including the non-resident landlord scheme.

Our credentials

Global

We are a member of Nexia International, a worldwide network of independent accounting and consulting firms, providing global reach and local knowledge.

Experience

Our partners have an average of 20 years’ experience.

Thought leaders

Our partners regularly contribute expert commentary on international tax matters in the national press and other prestigious publications.

 

Frequently asked questions

What is a non-dom?

The term ‘non-dom’ is applied to a UK resident who has a foreign (non-UK) ‘domicile’.

A person’s domicile is generally the place they consider their permanent home, the place with which they have the strongest social and family ties. Unlike residence, there is no one legal test to determine domicile, but various factors are considered. Determining legal domicile can be complex, and it is open to challenge by HMRC, so advice should be taken.

While it is possible to be resident in more than one place at any one time, it is only possible to be domiciled in one jurisdiction.

Someone who has moved to the UK for a short period of time is likely to be a non-dom. People who have lived here for many years may also retain a foreign domicile if they intend to leave the UK at a foreseeable time or on a foreseeable event occurring.

To find out more about Smith & Williamson’s Private client tax services, click here.

How are non-doms taxed?

Non-doms, who have not been in the UK long enough to acquire a deemed UK domicile – see below - can elect to be taxed on the remittance basis. This means that their foreign income and gains will only be taxable in the UK as and when they are remitted to the UK.

Any UK income, such as UK employment income and interest from UK bank accounts, and UK capital gains, such as gains realised on UK company shares or UK property, will be fully taxable as they arise.

If non-doms do not elect to be taxed on the remittance basis they will be taxable on their worldwide income and gains in the same way as a UK domiciled UK resident. There is an exception for those with foreign income less than £2,000 a year, to whom the remittance basis applies automatically.

Non-doms, who are not deemed domiciled, also have a limited exposure to inheritance tax in the UK. Only their UK assets are potentially chargeable to inheritance tax, rather than their worldwide assets.

To find out more about Smith & Williamson’s Private client tax services, click here.

What is a remittance?

The concept of a ‘remittance’ is very complex. It includes the movement of overseas assets into the UK, such as a transfer of cash to a UK bank account.

It can also include acquiring assets in the UK using offshore funds, or importing assets acquired abroad, or using foreign income or gains to service a loan that you have used in the UK. Assets held by investment companies or offshore trusts may also be treated as a remittance if brought to the UK. This is just a broad summary, the definition is more wide-ranging so advice may be required.

To find out more about Smith & Williamson’s Private client tax services, click here.

What is the remittance basis charge?

There is no charge for claiming the remittance basis for the first seven tax years of UK residence. Those claiming the remittance basis are however not entitled to the tax-free income and capital gains allowances for that year.

When an individual has been resident for more than seven of the previous nine tax years, they must pay £30,000 for each further year they wish to claim the remittance basis. In those years it may therefore only be worthwhile making the claim if the tax on offshore income and gains would otherwise exceed £30,000. The tax saving can still be significant for high net worth individuals or those with complex affairs.

For those who have been UK resident for more than 12 of the previous 14 tax years, the annual remittance basis charge is £60,000.

To find out more about Smith & Williamson’s Private client tax services, click here.

What is deemed domicile?

While it is possible to live in the UK for many years without ever becoming legally domiciled in the UK, you will become deemed domiciled in the UK for tax purposes if you have been resident for at least fifteen of the previous 20 tax years.

Once deemed domiciled, it is no longer possible for an individual to claim the remittance basis. They must instead pay tax on worldwide income and gains, and are liable to UK inheritance tax on their worldwide estate, not just on UK assets.

If you become deemed domiciled, it may be important to maintain your foreign domicile under general law. For example, the tax treatment of any offshore trust you established will be significantly different if you subsequently become UK domiciled as opposed to deemed UK domiciled.

To find out more about Smith & Williamson’s Private client tax services, click here.

How do I claim non-dom status?

It is relatively straightforward to make the claim to be non-UK domiciled, and to claim the remittance basis on your tax return.

Your tax return needs to be completed and filed by 31 January following the end of each relevant tax year. This means that you should be able to assess whether your offshore income and gains for that tax year make claiming the remittance basis worthwhile.

Domicile and remittances are complex areas of law, and HMRC can and do make enquiries from time to time to ensure the claims are valid and the right amount of tax has been paid. HMRC may ask for more details around your family and personal circumstances, to satisfy themselves that you are indeed non-UK domiciled.

In many circumstances, your domicile position may be fairly self-evident. However, domicile is determined according to complex rules and if you believe that you have reason to claim non-dom status, you should always seek professional advice.

To find out more about Smith & Williamson’s Private client tax services, click here.

Do I pay tax when I bring money to the UK?

Not all money brought to the UK from overseas will attract a tax charge. Generally, it is only remittances of income and capital gains that have arisen offshore while you have been resident in the UK which will be taxed when brought to the UK. Distributions from foreign trusts will however generally be taxed when remitted even if made from accumulated income and gains arising before you became UK resident. Otherwise, if you remit funds you held before you came to the UK, or gifts or other capital you received subsequently, these would generally not be taxable.

When funds come to the UK, there are complex and prescriptive rules that determine whether they represent foreign income and gains or capital. It may be necessary forensically to trace through bank accounts and transactions to analyse the source of the funds remitted.

Setting up separate accounts to segregate different types and sources of funds can make things simpler.

You should take advice at the earliest opportunity if you are planning to move to the UK and claim non-dom status. Ideally, this would be in the UK tax year before becoming UK resident.

To find out more about Smith & Williamson’s Private client tax services, click here.

Do non-doms pay tax on their offshore trusts?

There are advantages for non-doms in holding assets through offshore trusts. In particular, long term protection from inheritance tax, and a shelter from income and capital gains tax for those likely to become deemed domiciled or who do not want to rely on claiming the remittance basis each year.

The taxation of offshore trusts is however extremely complex. They can provide specific and substantial benefits, but these may be forfeited if the trusts are not carefully managed or if the settlor becomes UK domiciled under general law. Distributions from foreign trusts will, of course, nearly always be taxable if not subject to the remittance basis, and the advantages of using trusts over holding funds in segregated portfolios needs to be carefully considered.

Given the complexities, if you have an offshore trust structure, or are considering establishing one, you should ensure you have a professional tax adviser to guide you.

To find out more about Smith & Williamson’s Private client tax services, click here.

 

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