Am I a ‘nondom’?
A ‘nondom’ is a term for someone who has a domicile in a country other than the United Kingdom. The rules on domicile are complex but broadly speaking you take the domicile of your father providing your mother and father were married when you were born or that of your mother if they were not. This is known as your domicile of origin.
Your domicile of origin is distinct from tax residence and nationality. You keep your domicile of origin for the whole of your life unless the person who gave you your domicile changes their domicile during your minority or you make a decision to abandon your domicile of origin and establish a domicile somewhere else. This is known as a domicile of choice.
Ten Top Tips:
1. Pre-immigration planning
If you are coming to the UK for the first time then income and capital gains earned prior to becoming UK tax resident are treated as capital which can be brought to the UK in the future when needed, tax free.
Segregate the tax free capital in an offshore bank account in sterling so it can be clearly identified.
Avoid mixing income (e.g. bank interest) with capital or making further deposits (unless they are confirmed as tax free capital) after you become UK tax resident.
2. Avoid mixing income and gains
The rules on identifying sources when they are mixed are complex. Income and gains are taxed in different ways and so you should arrange your offshore bank accounts and investment accounts so that you can easily identify the sources of income and separate capital gains from capital losses.
3. Use the ‘remittance basis’
Nondoms can pay tax on the remittance basis. The remittance basis is where you are taxed on UK sources of income and gains as they arise and on foreign sources of income and gains only to the extent that they are remitted (broadly defined) to the UK. Depending on your circumstances you may lose the benefit of your personal allowances.
Therefore, as a general rule, if money has to be brought to the UK, use capital or capital losses before foreign income and gains and use foreign gains in priority to foreign income.
4. Avoid UK investments
The income and gains of UK investments are subject to UK taxes as they arise. They are also potentially subject to UK inheritance tax whatever your domicile might be.
5. Avoid the remittance basis charge
There is an annual remittance basis charge of £30,000 to claim the remittance basis if you have been resident in the UK in 7 out of the preceding 9 tax years (tax years run to 5th April) and where your unremitted foreign income or gains are more than £2,000 in that tax year. This charge is set to increase to £50,000 with effect from 6th April 2012 for ‘long-term residents’ who have been resident in the UK in 12 out of the previous 14 years.
Take tax and investment advice before you pay the remittance basis charge.
6. Nominated income
If you do pay the remittance basis charge you need to nominate a foreign source of income or gains of at least £1 in that tax year.
There are adverse consequences if the nominated source is brought to the UK. Segregate the nominated income or gain so that it cannot be brought to the UK.
7. Pay the remittance basis charge using foreign income
Paying the remittance basis charge using foreign income is not a remittance of that income provided that it is arranged correctly and paid directly from your foreign account to HM Revenue & Customs.
8. Make use of the foreign workdays deduction
Employees who are resident but not ordinarily resident may be able to take a deduction for days worked abroad.
A person will generally become ordinarily resident if they have the intention to live in the UK for 3 years or more.
Take tax advice, arrange for your salary to be paid offshore and keep a travel diary.
9. Deemed domicile
You may become deemed domiciled in the UK for UK inheritance tax purposes only once you have been resident in 17 out of the preceding 20 tax years in the UK.
Consider setting up an offshore trust before you become deemed domiciled in the UK to access capital gains tax and inheritance tax advantages.
10. Wills
Prepare a UK will for UK situs assets and a foreign will for foreign assets which work together.
Mark Davies |
|
| Director | |
| Telephone: + 44 (0) 203 0088102 | |
| Email:mdavies@mdaviesassociates.com |
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This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position, you should consult a qualified professional adviser.