The UK still provides significant UK tax mitigation strategies for overseas income sources where you are tax resident here, but not UK domiciled (Non Dom). HMRC are looking very closely at this group of individuals and have recently issued “Nudge letters” asking them if they are confident their tax liabilities have been reported correctly, particularly targeting those who have been resident in the UK for a number of years.
What is Domicile?
Domicile is a legal concept which is not the same as nationality and unlike residence (where you can be viewed as resident in more than one country at any one time) for tax purposes, it is only possible to have one domicile at any one time. This is usually the individual’s country in which they have a permanent home. A domicile of origin is acquired at birth and under UK law, this is normally the father’s domicile. A domicile of choice can also be acquired if you move to another country and make it your permanent home.
Domicile and UK tax impact
UK resident individuals are charged to income tax on their worldwide income, but where you are resident but not domiciled in the UK, you can choose each year to be taxed on your foreign income or gains, either as it arises, or on the “remittance basis” which taxes foreign income only as it is brought into the UK. The remittance basis must be claimed, unless overseas income amounts to less than £2,000 in any tax year.
For the first seven years of UK tax residence, the remittance basis of assessment can be claimed without having to pay any charge. However, where you have been resident for 7 out of the last 9 years of assessment, an annual remittance basis charge would have to be paid of £30,000. This annual charge rises to £60,000 if UK resident for 12 out to the previous 14 years. Then after 15 years of UK residence, an individual is deemed to be UK domiciled and worldwide income and gains would be fully taxable.
It follows that continuing to claim the remittance basis of assessment after 7 years of UK tax residence, would only make sense if there are very significant overseas income and gains that would generate a UK tax liability of at least £30,000.
There are complex rules to determine whether or not income, or other sums have been remitted to the UK and navigating these can add a particular layer of complexity to UK tax reporting requirements. HMRC are fully aware of this, but they still expect an individual to ensure their tax affairs are correct, even if that requires taking professional advice.
HMRC have recently issued letters to hundreds of non domiciled individuals who have been UK resident for many years. This is based on their suspicion that these same individuals have failed to declare and pay the annual remittance charge mentioned above. They have initially focused on submitted 2020 Income Tax Returns, where remittance basis of assessment has been claimed, but no associated remittance charge has been declared/paid. HMRC are offering them an opportunity to revisit the Tax Return and make sure “they’re getting their tax right”.
It’s worth pointing out that HMRC now have line of sight to global income and assets held by individuals. The global automatic exchange of information agreements now require more than 110 countries to provide HMRC with full details of overseas sources and vice versa.
It is highly probable that HMRC will fully understand the extent of any foreign income sources which means any associated response must be carefully considered.
If you have received such a Nudge letter from HMRC, we would always recommend that professional advice is immediately taken to ensure both the UK and global tax position is carefully reviewed and considered. There is no legal obligation to complete the associated certificate of disclosure that normally accompanies these HMRC letters and we would never recommend completion on this basis, especially since the declaration states that making a false statement could lead to criminal investigation.
Why come to us?
We are perfectly placed to help you with any such HMRC Nudge letter. Our Private Client International tax team have significant experience providing tax help to resident, non doms, on both compliance and tax planning aspects. We therefore have the essential specialist knowledge and expertise to be able to offer you clarity and support around any overseas tax matters.
We also provide specialist advice connected to all types of HMRC Investigations, Disputes and Disclosures. Our in-house, cross-service, experienced team can provide this bespoke advice, utilising all guidance, legislation and case law to achieve the best results possible.
If you would like to find out more about this, please contact Lynn Gracie or your usual AAB contact.