UK Domiciled vs Non-UK Domiciled: A Guide

Domicile has been the subject of many headlines recently following the high-profile case of Akshata Murty, wife of the Chancellor of the Exchequer Rishi Sunak. Mrs Murty has opted to claim non-UK domiciled status, and it has been estimated she has saved millions in UK tax in doing so.

Whether or not Mrs Murty should be claiming non-UK domiciled status has attracted many strong opinions in recent weeks. In this article, we will not enter into this debate but instead provide an overview of the domicile rules, the tax advantages of being non-UK domiciled and other key points to be aware of.

What is domicile?

Domicile is distinct from residence, nationality, and citizenship. Unlike residence, domicile is a long-term concept. You cannot be without a domicile, and you can only have one domicile at any given time. You will generally be domiciled in the country in which you have a permanent home and where you intend to reside permanently or indefinitely.

You normally acquire a domicile of origin from your father when you are born. You will keep this domicile unless you acquire a domicile of dependency (this would be the case if the domicile of the person on whom you are legally dependent changes before you reach the age of 16) or a domicile of choice (once you reach the age of 16 you can acquire a domicile of choice in a new country if you intend to remain in the new country permanently or indefinitely).

What is deemed UK domicile?

Deemed UK domicile was introduced by HMRC from 6 April 2017. You will be deemed UK domicile for income tax, capital gains tax and inheritance tax if you meet either of the following conditions:

• You have been UK resident for at least 15 out of the previous 20 tax years, or
• You return to the UK to become UK resident in the tax year, having been born in the UK and had a UK domicile of origin but later emigrated and acquired a foreign domicile

There is a third condition which applies for IHT only

• You had been UK domiciled under general law at any time in the previous three tax years

Why is domicile relevant to my UK tax position?

UK domiciled individuals are taxed in the UK on an arising basis, meaning that worldwide income and capital gains fall within the scope of UK income and capital gains tax. Non-UK domiciled individuals can be taxed on an arising basis on worldwide income and gains or the remittance basis. The benefit of the remittance basis is that although your UK source income and capital gains are taxed on an arising basis, foreign income and capital gains are only taxed to the extent they are remitted to the UK.

The benefits of the remittance basis of taxation diminish the longer that you are resident in the UK. After 7 years in the UK, there is a remittance basis charge of £30,000 per annum to continue benefiting from this favourable tax treatment. The charge increases to £60,000 once you have been in the UK for more than 12 years. Once you have been in the UK for more than 15 years, you will be considered deemed UK domicile and you will no longer be able to claim the remittance basis, unless it applies automatically.

There is clearly a benefit to being non-UK domiciled, particularly if you have significant foreign income and gains and you have been resident in the UK for 7 tax years or less.

Domicile is also used to determine an individual’s exposure to UK inheritance tax (IHT). UK domiciled individuals are chargeable to IHT on worldwide assets. Non-UK domiciled individuals are chargeable to IHT in respect of UK situs assets only.

How do I know where I am domiciled?

If you were born in the UK, have spent most or all of your life in the UK and you consider the UK to be your permanent home then you are probably UK domiciled.

If you were born outside the UK, you are currently living outside the UK, or you are in the UK, but you do not intend to remain in the UK permanently or indefinitely then your position may be more complex, and a domicile review should be carried out to determine your domicile status.

How do I report my domicile status to HMRC?

If you have a non-UK domicile of origin or consider that you have acquired a non-UK domicile of choice, this should be reported to HMRC on a self-assessment tax return.

You will also need to file a tax return to HMRC to claim the remittance basis as this is not automatic.

Can HMRC challenge my domicile status?

HMRC can and do challenge the domicile status of UK taxpayers.

Without clear evidence on file, HMRC can deem you to be either domiciled in the UK or deemed UK domicile which can significantly increase your exposure to UK tax.

It is therefore important that your domicile status is reviewed and you can support this status in the event of an HMRC enquiry.

How often should I review my domicile status?

HMRC have not issued guidance on how frequently your domicile status should be reviewed, however it is important to remember that a domicile review is a snapshot of your circumstances at the time the review is carried out. Just because you are non-UK domiciled at the time of the review does not mean your circumstances will not change, and you should ensure you continue to review your circumstances and seek advice if your circumstances do change particularly if you settle in a country other than that where you are domiciled or if your links with the country to which you are domiciled diminish.

The above should be used as a general guide only. The domicile rules are complex, and each case must be reviewed on an individual basis. If you would like any support with either your residence or domicile status, please do not hesitate to contact us.