This is all down to something known as the ‘remittance basis’ of taxation, which most individuals from overseas can take advantage of. If you are eligible for the remittance basis, you are only taxed on your non-UK income and capital gains to the extent that they are brought in to the UK (together with any UK income and capital gains).
Therefore, if you do not have any UK income and gains and you do not need to bring any of your non-UK income and gains in to the UK to live off, then you can be tax resident in the UK but potentially pay no tax here at all. This is a huge benefit and one of the many reasons that make the UK an attractive place for people to move to.
How do I know if I am able to take advantage of this special tax treatment?
Your UK tax treatment is decided by your ‘domicile’ status and your ‘residence’ status. If you are resident but not domiciled in the UK, then you receive special tax treatment.
Domicile
You are generally domiciled in the country that you have substantial connections with and consider to be your permanent home. In most cases you are domiciled where your father is domiciled when you are born. It is quite difficult to change this. Generally, you only become UK domiciled if you decide to remain in the UK permanently or indefinitely. If you intend to return to your country of origin (or elsewhere outside the UK) at some stage you will almost certainly be considered non-UK domiciled (a “non-dom”).
Residence
Tax residence, on the other hand, is determined using a test based on the number of days you spend in the UK. Anyone who spends 183 days or more in any tax year in the UK will be UK resident. However, some people who spend less than 183 days in the UK can also become tax resident. Factors like having family in the UK or having accommodation in the UK can affect this. The more connecting factors you have, the fewer days you can spend in the UK without becoming tax resident.
What is the remittance basis of taxation?
If you are UK-resident but not domiciled you will probably be able to be taxed on the ‘remittance basis’.
The remittance basis does not apply automatically and must be claimed when you file a UK tax return. Also, it can be claimed in some tax years and not in others. If the remittance basis is claimed, you will only be taxed on foreign income and capital gains to the extent they are brought in (or enjoyed in) the UK.
For the first seven tax years of residence there is no charge for using the remittance basis. However, once you have been resident for seven out of the previous nine tax years, an annual fee of £30,000 is payable. Once you have been resident for 12 out of the previous 14 tax years, an annual fee of £60,000 is payable. The remittance basis is not available once you have been resident for 15 out of the previous 20 tax years.
The rules are complicated and it is important to take proper advice to ensure that you do not inadvertently make a taxable remittance.
Pre-arrival planning
If you are considering moving to the UK and you think the above tax regime may be relevant to you, it is important to take advice well in advance of your arrival in the UK. In particular, it is important to plan how you are going to fund your lifestyle in the UK.
Any funds you have before becoming tax resident in the UK are generally considered ‘clean capital’ and can be brought into the UK free of tax. Such funds should be carefully segregated and any income earned on them should be credited directly to a separate ‘income’ account. This ‘clean capital’ can then be used for UK expenditure.
This is just a very brief summary of some of the key features of the ‘non-dom’ tax regime. The UK tax system is complicated and it is essential that proper detailed advice is obtained.
This blog was written by Tim Crook, Head of Tax at Gherson’s partner firm Discreet Law LLP .Tim can be contacted by e-mail
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
©Gherson 2021