Domicile and residence can each have a significant impact on how much UK tax you must pay, or indeed if you must pay UK tax at all. Both terms are used for tax purposes and have little to do with citizenship or nationality.
Domicile is the country you regard as your natural home. You can only have one domicile at any time. Your domicile can be of origin, choice or dependency. However, there are also specific rules which can deem you to be UK domiciled even if you do not have a UK domicile of origin, choice or dependency if you have been UK resident for 15 out of the past 20 years.
Where you are domiciled is relevant for a number of taxes. A British domiciled person is liable to pay inheritance tax on their entire estate wherever it is in the world. A ‘non-dom' is liable to pay inheritance tax only on their UK property (including UK residential property held through overseas entities).
Domicile is also relevant for calculating income tax
and capital gains tax
on a UK resident’s overseas income and gains. A UK resident and domiciled person is liable to pay income tax and capital gains tax on their worldwide income and gains. A “non-dom” can however elect to pay tax on their overseas income and gains only on a remittance basis (if they bring the income and gains into the UK). For non-doms who elect to pay on the remittance basis, this will involve an annual charge (if they have lived in the UK for at least 7 years) but it is possible to elect into and out of this regime each year depending on the level of overseas income and gains.
There is also a specific tax relief which is available which can enable a “non-dom” to bring their overseas income and gains into the UK without triggering a UK tax charge. This relief is known as “Business Investment Relief” and is aimed at encouraging investment into UK businesses. The types of investment which can qualify for this Relief is widely drawn but there are a number of specific restrictions and timing rules which apply to such investments.
Our team of advisers can help steer you through the complexity of the non-dom tax system to ensure that your affairs are structured to maximise your entitlement to tax reliefs and to ensure that you do not trigger inadvertent UK tax charges when bringing money and assets into the UK.
We are also a member of Nexia International
which enables us to source overseas tax advice for you when and where you need it.