Non-UK Domiciled Individuals – the Importance of Pre-arrival UK Tax Planning
Due to the impact it can have on an individual’s UK tax liability, it is vital that domicile is fully understood by those wishing to relocate to the UK permanently.
In general terms, if a non-domiciled individual wishes to move to the UK permanently and has no intention to return to their previous country, then there is a strong case they will be considered UK domiciled for tax purposes.
Effective tax planning, pre-UK arrival is therefore critical to avoid potential costly surprises in the future.
UK Domiciled vs Non-domiciled Impact
Firstly, let us briefly look at the UK tax implications for a person who is UK domiciled versus non-domiciled. Please note that both individuals are UK tax resident in the year for this illustration.
Mr UK Domiciled
- Liable to tax on worldwide income and gains
- Worldwide assets are subject to UK inheritance tax
- Worldwide income and gains are taxable on the arising basis
- A claim for the remittance basis can be made which will mean Miss Non-domiciled will only be taxed on her foreign income and gains if she remits it to the UK. If it is kept offshore, she will not be subject to UK tax
- Non-UK situs assets are excluded from UK inheritance tax
From this, we can see that Miss Non-domiciled position is usually more advantageous from a UK tax perspective.
Determining your Domicile
In establishing whether a new domicile of choice has been created, careful consideration must be taken for the following points before making a decision to move to the UK:
- the intentions of the individual;
- their permanent residence;
- their business interests;
- their social and family interests;
- ownership of property; and
- the form of any Will that they have made.
This list is by no means exhaustive and there is no single criteria which determines whether an individual is or is not domiciled in the UK. Instead, a ‘balance of probabilities’ approach is taken.
Defend your Domicile
Taking into account the above, it is therefore essential to have provisions in place before arriving in the UK, to defend any potential challenge from HMRC.
Domicile enquires can be lengthy and intrusive should HMRC doubt an individual’s non-domicile claim. This can involve months or even years of correspondence involving various questions into; background, lifestyle and family and social connections, both from a historic perspective and to establish future intentions.
Acquiring and maintaining evidence of strong, ongoing links to the country of domicile is crucial for those claiming non-domiciled status, and so is evidence of an intention to leave the UK at a future date. This can be particularly problematic on death, potentially bringing a foreign estate within the scope of UK inheritance tax.
To avoid any hiccups in the future, it may be worth considering having a domicile statement prepared, to provide contemporaneous evidence supporting the claim .
IRC v Bullock: Mr Bullock had a domicile of origin in Nova Scotia. He lived in England for 40 years. His wife did not want to live in Nova Scotia. Mr Bullock hoped to return there should he persuade his wife to change her mind or should he survive her. It was held by the Courts that he had a real determination to return rather than a vague aspiration. Accordingly he retained his Nova Scotian domicile of origin and had not acquired an English domicile of choice.
Furse v IRC: Mr Furse expressed a wish to live in England for the rest of his life save only for a contingency that he would return to the USA, should he cease to be physically able to take an active interest in his farm (situated in England). The Courts decided that this intention was so vague as to impose no limit on his intention to remain in England. Accordingly he had acquired an English domicile of choice.
From the above we can see it is difficult to make a judgement without fully examining an individual’s position in detail.
An individual’s domicile status is a fundamental factor in determining his/her liability to UK tax. It also has implications for other branches of the law.
Due to HMRC’s increased number of investigations into the tax affairs of non-domiciled individuals, you should be prepared to present a robust defence in the event of any challenge from HMRC. A domicile statement can greatly assist, to provide evidence of an individual’s intentions, where it is supported by the facts, and can be particularly useful in situations where enquiries are opened by HMRC after death.
If you require additional information on this topic and further guidance regarding your domicile status, please contact your usual Dixcart adviser or speak to the Dixcart office in the UK: email@example.com