Even if you were to become UK resident you may still retain the domicile of your country of origin, your domicile is the place where you maintain a permanent home and it is very difficult to alter.
When you are born you are given a domicile of origin and that will remain unless you make the change and obtain a domicile of choice. This is not a simple matter and requires you to cut all ties with country that was your original domicile. In an extreme case an attempt to do this failed when all ties had been cut, the country was never visited, but the individual had at some time expressed a desire to be buried there.
There are a number of factors that relate to your domicile, including how you are taxed in the UK. This could be on either on your UK and income sent to the UK only, or on your worldwide income.
The Remittance Basis
As a UK resident, the starting point for taxation is that you are taxed on your worldwide income, even if it is already taxed in the country in which it arose. In most cases where a double tax treaty exists and you will get a credit for the tax paid abroad against the amount you owe in the UK, or in the other country for the UK tax paid. Each treaty is different although most follow the OECD protocol and ensure that income is only taxed in one country or the credit is given to prevent double taxation if the income is taxable in both countries.
However, in addition to the above if you have a non UK domicile you can elect to only pay tax on the amount of income that arises in the UK and that which you remit to the UK, this is quite a complex scenario but in simple terms it means that you only pay UK tax on the income and capital gains that you send to UK, if you retain the income abroad you will not pay tax in the UK on it.
There are however other factors to consider. To elect to take the remittance basis means that you will forfeit your personal tax-free allowance currently £12,570 for the 2021/22 tax year. In addition, once you have been resident for 7 out of 9 tax years you will face an annual charge of £30,000 per year and those here for 12 of the last 14 years will pay £60,000. From 5th April 2017 non-domiciled individuals suffer further change and once an individual has been UK resident in more than 15 out of the past 20 tax years, they will be deemed to be UK domiciled for all tax purposes, despite being a foreign domiciliary under general law.
It is worth noting that this charge can be paid out of offshore income and it will not count as a remittance provided it is paid directly to HMRC, there are certain rules to be followed for this exemption to apply.
The Remittance basis charge (RBC) is seen as an advance part payment of tax on your non UK income and as such you must nominate some income each year to which the charge may be attached. There are complex rules to follow and lots of pitfalls if you get this wrong. This nominated income must be identified and not be remitted to the UK before any other overseas income. If it is there will be tax consequences. You need only nominate £1 per year but the income must arise in the year and must be over £1. On the other hand, the RBC is considered as tax paid in the UK so you may want to nominate more income in fact enough to cover the amount paid so that it can be allowed as double tax relief in another country.
Another factor is that from 5th April 2017 for all tax purposes you will be given a deemed domicile if you have been UK resident for 15 out of the last 20 years. With effect from the sixteenth (out of the last twenty) tax years of UK residence, an individual will no longer be able to benefit from the remittance basis and will instead be subject to UK tax on their personal worldwide income and gains on an arising basis. They will also be liable to UK inheritance tax on their worldwide assets, not only those situated in the UK which is applied at 40% on all assets over the tax-free allowable amount which for 2021/22 is £325,000.
Services we offer
We are pleased to be able to offer the following taxation-based services:
A General tax consultation and/or specific tax advice;
Tax planning for your general situation or for a specific transaction;
Registration for National Insurance and Unique Tax Reference numbers;
Preparation and submission of annual self-assessment returns;
Preparation and submission of return for overseas landlords;
Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.
All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.
For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email