Moving to the UK
Attractive place for investments
The UK has long been a highly attractive place to do business. With its combination of world-class universities, a flexible and open business environment, an excellent public services infrastructure and the strength and depth of its innovation sector, the country continues to attract inward investment from all over the world.
Following its departure from the European Union (EU), Britain is going through enormous change. In a post-Brexit world, the country’s relationship with the EU is governed by the EU-UK Trade and Cooperation Agreement (TCA). This free trade deal was the product of several months of intense negotiations and sets out the agreed legal terms under which the EU and the UK will operate going forward. The TCA has been provisionally applied since 1 January 2021, pending approval and ratification in the European Parliament.
As the UK entered a new chapter in relations with Europe, it put an end to the free movement of people from the EU to the UK and vice versa. On 1 January 2021, the government implemented a points-based immigration system. EU citizens are now treated the same as those from the rest of the world.
Non-Dom Tax Planning
If you’re a foreign national living or planning to live in the UK and were born in another country, you can likely claim special tax status as a non-domiciled (non-dom) UK resident.
Non-doms are individuals who are resident in the UK but who have their permanent home (‘domicile’) outside the country. A person’s domicile is the place their father considered his permanent home when they were born.
The non-dom status can be advantageous to UK taxpayers in the right circumstances. For example, with careful planning, it can protect foreign income and gains from being taxed in the UK.
Arising vs Remittance Basis of Taxation
Non-doms can elect to pay their tax on arising or remittance basis. The arising basis is when you pay UK tax on your worldwide income and gains. This is the same for individuals who are resident and domiciled in the UK.
The remittance basis is where a non-dom is liable to pay UK tax only on their incomes and gains brought into the UK. They do not pay UK tax on foreign income and gains provided these are not brought into the country, such as by transferring them to a UK bank account.
Non-doms can change between the remittance and arising basis each tax year depending on circumstances. One year it might be more tax-efficient to claim arising basis instead of the remittance basis.
To claim for remittance basis, you will need to file a Self Assessment tax return with the HMRC (Her Majesty’s Revenue and Customs). If no claim for remittance is made, arising becomes the default position, which means you will have to pay tax on your worldwide income and gains.
The remittance basis is a major tax incentive for people with significant income sources outside the UK because HMRC will not tax these.
Note that if you choose to claim the remittance basis, you will lose the tax-free allowances for both income tax and capital gains tax.
The personal allowance for income tax is £12,500, which is the amount of income you can earn before having to pay tax.
The tax-free allowance for capital gains tax (called the Annual Exempt Amount) is currently £12,300 and £6,150 for trusts.
You will also have to pay an annual charge if you have been resident for a certain amount of time.
This is known as the remittance basis charge, and it is not levied for the first six years of residency.
After that, the following charges apply:
- £30,000 (if you have been a UK resident for at least seven out of the last nine tax years)
- £60,000 (if you have been a UK resident for at least twelve out of the last fourteen tax years)
If you were born in the UK or have been a UK resident for at least fifteen of the last twenty years, you will be treated as domiciled in Britain and unable to claim the remittance basis. You will be taxed on the arising basis.
Non-Dom UK Income Tax Rates
There are three rates of income tax in the UK.
This starts at:
- 20% for an income of £50,000 or lower
- 40% for an income of £50,001 to £150,000
- 45% for an income of over £150,000
Non-Dom Capital Gains Tax Rates
Basic rate tax payers have to pay 18% on gains from residential property and 10% on gains from other chargeable assets.
Higher or additional rate tax payers have to pay 28% on gains from residential property and 20% on gains from other chargeable assets.
Non-Doms and Inheritance Tax
Being a non-dom can also be advantageous when it comes toinheritance tax (IHT).
When a UK-domiciled individual dies, their estate is subject to IHT on a worldwide basis. However, UK non-doms and not deemed domiciled in the UK for IHT, and therefore the tax only applies to their UK assets.
The standard inheritance tax rate is 40%, and it is charged when a person’s estate is worth more than £325,000.
The domicile status of beneficiaries is not relevant for IHT purposes.
How We Can Help
The rules surrounding non-dom tax statuses can seem complicated, convoluted and challenging to navigate. We will analyse your situation, discuss your options and advise on the most tax-efficient route.
Our combined expertise in tax, accounting and immigration mean we can provide you with sound advice and practical solutions to mitigate your exposure to UK taxes.
We can assist you in the following areas:
Advising on UK residency laws
Advising on rules surrounding non-dom status
Advising on rules around declaring worldwide income in the UK
Advising on inheritance tax planning
Advising each year on whether arising or remittance is the most tax advantageous method to elect
Preparing your UK tax returns
Ensuring there are no unexpected tax liabilities when you become a UK resident
It is worth emphasizing that the non-dom status has come under increasing political pressure in recent years. While the government says non-doms bring investment into the UK, the Labour Party (the Official Opposition) argues non-doms enjoy all the benefits of UK infrastructure but are not liable to UK taxes on the same basis as the majority of UK citizens.
The party’s current stance is that it would abolish the non-domiciled status in its first budget should it get into power.
Therefore if you are considering applying to be non-domiciled in the UK, it would be fair to say you should live with the expectation that it may one day be scrapped.