DOMICILE STATUS RELIEF

A domicile is a concept in English law that refers to the country that a person considers their permanent home, or where they have a substantial connection.
Non-UK domiciled status is a legal concept referring to individuals who, for tax purposes, have their permanent home (domicile) outside the UK. It’s important to differentiate between the term ‘residence’ and ‘domicile’ here. An individual can be a UK resident – that is, live in the UK – but still have their domicile elsewhere. Domicile status typically depends on where a person was born, where their parents lived, and where they expect to live in the future.
This tax status is meant to encourage high-net-worth individuals to live and invest in the UK, without subjecting their foreign income and gains to UK tax, provided that income/gains are not brought into the UK.

Non-domiciled tax status and its accompanying reliefs have been a controversial topic in the UK since catching headlines of Rishi Sunak’s wife taking advantage of this, and various reforms have been suggested to alter or abolish the status.
  1. Remittance basis : UK tax rules allow non-UK domiciled individuals to opt for a special tax status known as the “Remittance Basis”. Under the remittance basis of taxation, UK sourced income and gains are taxed in the UK as they arise, but foreign income and gains are only taxed when they are remitted (brought) to the UK. This contrasts with the standard “Arising Basis” of taxation, where UK residents are taxed on their worldwide income and gains as they arise, regardless of whether the income or gains are brought to the UK.
  2. Annual Charge : However, after a person has been a UK resident for 7 out of the previous 9 tax years, they must pay an annual charge to claim the remittance basis of taxation. This charge starts at £30,000 but increases depending on how long the individual has been resident in the UK.
  3. Deemed Domicile (15 out of 20 rule) : Under the deemed domicile rules, which were reformed significantly in 2017, an individual is considered to be domiciled in the UK for tax purposes if they have been a UK resident in at least 15 of the 20 tax years immediately preceding the relevant tax year. This is sometimes referred to as the “15 out of 20” rule.
When a person becomes deemed-domiciled in the UK, they can no longer use the remittance basis of taxation, which means they are liable for UK tax on their worldwide income and gains, not just those brought into the UK.

In addition to the 15 out of 20 rule, an individual will also be deemed UK-domiciled if they were born in the UK, had a UK domicile of origin at birth, and are UK resident in a given tax year. This is meant to prevent “ex-pats” who have strong ties to the UK from claiming non-domiciled status.

An individual will also be deemed domiciled for Inheritance Tax purposes if they have been a UK resident for at least 15 of the last 20 tax years, or if the individual was domiciled in the UK at any point in the three years immediately preceding a transfer of assets.
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