Non-domiciled Status – What Does it Mean?
Non-domiciled ‘non-dom’ status can be confusing and complex. To help you understand more, HURST’s Lisa
Wilson answers typical questions from a UK perspective.:
1) How does one qualify for non-dom status?
“There are three types of domicile (origin, dependence and choice). A domicile of origin is acquired at birth and is
usually the father’s domicile, or the mother’s when the parents are not married. A domicile of origin will usually
continue until you acquire a new domicile. If you live in the UK but have a domicile of origin, dependence or
choice which is outside of the UK you will be considered a non-dom. Even if you were born in the UK, if your
father has a foreign domicile, you can inherit that foreign domicile from him, as long as you don’t intend to live in
the UK permanently.”
2) Will people go to extraordinary lengths to remain a non-dom?
“Non-doms can enjoy significant tax savings on income tax, capital gains and inheritance tax. However, in 2008 a
£30,000 annual levy was introduced for individuals who have lived here for at least 7 out of the previous 9
years(£50,000 for those who have lived here at least 12 of the last 14 years) who are not taxable on their
worldwide income in the UK. Since then, the number of non-doms has dropped significantly. We don’t see
people going to extraordinary length to be deemed non dom as the benefits of being a non-dom are rarely
sufficient to warrant this. Although non-doms can enjoy tax savings on inheritance tax, they will be ‘deemed to be
UK domiciled’ if they were domiciled in the UK within 3 years of leaving the UK permanently or if they were
resident in the UK for at least 17 out of the last 20 tax years.”
3) How complex are the rules governing non-dom status? Are changes required?
“Very complex. There have been considerable changes to the rules over recent years and there’s an air of
mystique around non- doms with few understanding what the status really means. However there is a feeling that
non doms receive a tax advantage that UK domiciliaries don’t.
“The rules revolve around residence and an individual’s domicile but there are no statutory definitions of the
term, leaving it down to interpretation. Changes are needed to demystify the non-dom status and ensure we
don’t risk investors leaving Britain if the cost of working here becomes too prohibitive.”
4) What are the benefits/ drawbacks of being a non-dom?
“Non-doms are only taxed in the UK on income and capital gains arising outside the country if they bring it back to
the UK. The tax savings can be huge. A drawback is that people who want to take advantage of the status must
be extremely organised in their financial affairs. Most have various bank accounts separating their income and
capital. This can become frustrating and time consuming.”
5) Recent budgets worked for or against non-doms? In what way?
“The government has had to be extremely careful. On one hand there are constant calls for the tax breaks to be
reduced, with people arguing the rules are unfair and non-doms shouldn’t be given breaks above UK citizens. On
the other, the government is keen to give incentives so that non-doms continue investing in the UK. As a result of
this balancing act, we’ve seen the government introduce levies to show it’s listening to concerns but it hasn’t
introduced anything severe enough to make non-doms up and leave.”
6) Any new legislation had an influence?
“In this year’s Budget, the Chancellor unveiled controversial plans to increase the inheritance tax break for nondom couples. The spouse of a deceased UK domiciled individual can receive the full IHT allowance of £325,000 if
they have not utilised it– for non-domiciled spouses this is reduced to £55,000. This is the figure the Chancellor
plans to increase. This move could be hugely beneficial for high net worth couples.”
7) Big Court cases? Impact?
“There have been a number of court cases in respect of domiciles in the past. In the case of IR Commrs v Bullock it
was established that a person’s residence in a country is not sufficient enough to displace a person’s domicile of
origin. If a person does not have a domicile, HMRC will automatically assume a domicile of origin. However, as
each case is different they must all be judged on their own facts.”