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Non-Domiciled Individuals

Non-Domiciled Individuals

This factsheet sets out the rules which deal with the taxation in the UK of income arising outside the UK, for non UK domiciled individuals.

The issue

An individual who  is  resident in the UK but  is not domiciled (referred to as 'non-dom') may opt to be taxed on  what is termed the 'remittance basis' in respect of income and capital gains  arising outside the UK. What this  means  is that instead of being taxed on  their  actual income/gain arising in the year, they  are  taxed on the amount of that income/gain actually brought into the UK in the tax  year.

Every non-dom must give very careful consideration to their UK tax position and take extreme care  in planning their overseas income and capital gains.

Claiming the remittance basis

The starting point of liability for all non-doms is that overseas income/gains are taxable on the arising basis just as they are for any UK domiciled individual. The non-dom will have the option of making a claim for the remittance basis to apply, but if they make this claim, they will automatically forfeit their personal allowance for income tax purposes and their annual exemption for CGT. This will obviously impact on their total tax liability including any UK income/gains.

The main situation where a non-dom will be able to benefit from the remittance basis without making a claim and will therefore retain their allowances is when they remit to the UK all but a maximum of £2,000 of their income and gains arising abroad in the year.


Jan, who is domiciled in Poland but who has been  living in the UK for five years, has rental income arising from the  letting of property in Poland. Let's  pose two different scenarios for  2017/18  assuming his overseas income is £5,000.

Scenario 1: He remits £1,000 to the UK - he can pay tax on the full £5,000 as it arises and he will retain his personal allowance against that and any UK source income. If he claims the remittance basis he will pay tax on £1,000 but will lose his personal allowance against that and any UK source income.

Scenario 2: He remits £3,000 to the UK. He can have the benefit of the remittance basis and pay tax on only £3,000 because he has left no more than £2,000 unremitted. He will retain his personal allowance.

Claiming the remittance basis - long term residents

What is a long term resident?

Matters become more complex and serious when an individual  falls within the definition of a long term UK resident. This will arise when  the individual has been resident in the UK for at least seven out of the nine UK  tax years preceding the one for which liability is being considered. For these  purposes a part year of residence counts as a full year. In considering the  position for  2017/18 it  is necessary to look at the individual's UK residence position going back as  far as  2008/09 (ie  to 6 April  2008). If  they have been UK  resident for at least seven of those years then they will be classed as a long  term resident for the purpose of the remittance basis.


Sanjay first came to the UK in July  2010.  He will be classed as resident here from  2010/11  which will mean that he meets the seven year rule and will therefore be treated  as a long term resident in  2017/18.  If his residence had not commenced until July  2011  he would only have six years of residence and would not become a long term resident  until  2018/19.

What are the implications of being a long term resident?

Essentially the long term resident (who must be 18 years of age or over at some time in the tax year concerned) can only claim the benefit of the remittance basis if they pay an additional £30,000 in addition to the tax on any income or gains remitted. This sum is known as the 'remittance basis charge' (RBC).

The rules surrounding this charge are complex but the 'bare bones' are as follows:

  • the charge effectively represents tax on unremitted income or gains
  • the non-dom nominates specific income/gains to represent this charge
  • the sums nominated cannot then be charged to UK tax even if they are subsequently remitted to the UK in a later year
  • the nominated income/gains are deemed to be remitted only after all other unremitted income/gains have come into the UK
  • tax on the sums nominated may be eligible for relief under a double tax agreement (DTA).

The RBC is not avoided where there is a failure to nominate specific income/gains and such failure may result in duplicate or higher taxation in future years.


Let us assume that Sanjay is then a long term resident for 2017/18 and that he has overseas income arising in India of £6,000. He can only  secure the remittance basis for  2017/18  if he pays the RBC. Clearly it  would be nonsensical for him to pay that charge to avoid tax on say for example £4,000 of  income which was unremitted. He will therefore not elect for the remittance  basis and will pay UK tax on  the full £65,000 of income arising from India. If that income has been  subject to tax in India he  may be entitled to set any Indian tax against his UK liability.


Sergio is a very wealthy Spaniard who has been  living in the UK for seven years. He is a higher rate UK tax payer. In  2017/18  he has income of £150,000 arising in Spain and also makes a capital gain of  £500,000 on the sale of a Spanish commercial property. He remits none of this to the UK in   2017/18.

He claims the remittance basis and  obviously has no liability on remitted income because there is none. He will  have to pay the RBC of £30,000 and must nominate income or gains to represent  this sum. He could nominate £150,000 of the capital gain which, taxed  at 20%, would represent a liability of £30,000.

That  would satisfy the RBC and would mean that £150,000 of the gains would not be  taxed if it is subsequently remitted. It would also mean, subject to the terms  of the UK / Spanish DTA, that he may be eligible for relief in respect of any  Spanish tax on this sum.

Higher RBC charges for some

A higher RBC charge applies for an individual that has been a UK resident for 12 out of the previous 14 year. This charge is currently £60,000. A further additional  RBC was introduced for those resident for 17 out of the previous 20 years of £90,000 but this is not relevant for 2017/18 onwards due to a fundamental change in the taxation of certain long term UK resident non UK doms (considered later in this briefing).


If Sergio (from the previous example) has  been living in the UK for say 12 years then given the same circumstances he may  decide that £60,000 is too high a price to pay.

If he did decide to claim the remittance  basis there is still no liability on remitted income because there is none. He  would have to pay the increased RBC of £60,000 and must nominate income or  gains to represent this sum. He could nominate  £300,000 of the capital gain which, taxed at 20%, would represent a liability of £60,000.

That  would satisfy the RBC and would mean that £300,000 of the gains would not be taxed if it is subsequently remitted. It would also  mean, subject to the terms of the UK / Spanish DTA, that he may be eligible for  relief in respect of any Spanish tax on this sum.

What is a remittance?

HMRC take the view that whatever method an individual  uses to bring income or gains into the UK it  may  be treated as a remittance. The rules are very detailed and it is  only possible here to give a brief outline.

Relevant person

Essentially a remittance can be caught if it is for the benefit of any person who, in relation to the taxpayer (ie the non-dom with overseas income/gains), is within the definition of a relevant person. That list includes:

  • the taxpayer
  • their spouse or civil partner
  • a partner with whom they are living as a spouse or civil partner
  • any child or grandchild under 18 years of age
  • a close company in which any relevant person is a shareholder
  • a trust in which any relevant person is a beneficiary.

Basic concept of a remittance

Two conditions must be in place for a remittance to arise. Firstly property, money, or consideration for a service, must be brought into the UK for the benefit of a relevant person and secondly, the funds for that property etc must be derived directly or indirectly from the overseas income and gains. These rules are much wider than the old rules. Some examples will help to explain the scope.


Alex, a wealthy Canadian lives in the UK with his wife and young children. He has a significant bank deposit in Jersey which generates a large amount of income each year. Any of the following uses of that income would constitute a remittance for UK tax purposes:

  • he buys an expensive car in Germany and brings it into the UK
  • he opens a bank account in the UK for each of his children with funds from Jersey
  • he sends his wife on an expensive weekend at a spa and the bill for the break is sent direct to Jersey for settlement
  • he uses a credit card in the UK which is settled on a monthly basis out of the Jersey income.

There are some exceptions for example clothes, watches and jewellery for personal use and other goods up to a value of £1,000.

A more indirect route is also caught

In the past it had been possible to use a route known as 'alienation' to avoid the remittance basis. This would involve an individual giving someone else their overseas income and then that individual bringing the money into the UK. In the recipient's hands it would have represented capital and the remittance would have been avoided. Now such a route is not possible. Any attempt at 'alienation' which involves the funds ultimately being brought into the UK for the benefit of a relevant person will be caught as a remittance by the taxpayer. This rule is likely to cause some difficult situations.


Alex gifts some of the Jersey income to an adult  son. He uses the money to pay for a UK school trip for his own son. The  grandson is a relevant person as far as Alex is concerned and this payment will  constitute a remittance on which Alex is taxable in the UK.

Other issues

There are a number of other issues covered by the rules such as:

  • transitional arrangements to deal with property acquired before 6 April 2008
  • transitional arrangements to deal with payment of interest on overseas loans used to fund the purchase of a UK property
  • the identification of remittances from mixed funds
  • dealing with gains arising in offshore trusts.

Relief for business investment

Where a non-dom remits funds to the UK  which are then invested in a qualifying business in the UK   those funds are not treated as a remittance so the remittance basis may be more  attractive. It should be noted, however, that a claim for the remittance basis  still involves paying the appropriate RBC which may be due.

The rules for Business Investment Relief  are detailed (and have been slightly improved with effect from April 2017) but the key elements are:

  • the investment must be in shares or loans to a trading company or a company which will invest in trading companies, or a company which is a combination of the two
  • the company must be unquoted
  • the non-dom (or any relevant person in relation to the non-dom) must not receive any benefit from the company which is directly or indirectly attributable to the investment
  • when the investment is subsequently realised the non-dom will have 45 days to either reinvest in another qualifying company or remove the funds from the UK otherwise they will be treated as a remittance in that later year.

Key changes for the long term resident non-UK domicile

A number  of fundamental changes are to be made from 6 April 2017:

  • for individuals who are  non-UK domiciled but who have been resident for  15  of the  previous  20 tax years or
  • where an individual was  born in the UK with a UK domicile of origin and resumes UK residence having  obtained a domicile of choice elsewhere.

Such individuals will be  classed  as  ‘deemed’  UK  domiciles  for  income  tax,  CGT and IHT purposes    and will be assessable on  worldwide income, gains and assets. They will  not be  able to  access the remittance  basis.

IHT Matters

The concept of deemed UK domicile has existed for many years but for IHT only. A UK deemed domicile is  chargeable on worldwide assets for UK IHT rather than only on UK assets if non-UK  domicile. The effect of these reforms is that an individual  will become deemed UK domiciled for  IHT at the  start of  their sixteenth consecutive year of UK residence, rather than at the start of  their seventeenth year of residence under  the rules which have applied to 5 April 2017. For IHT purposes only a deemed domicile will lose deemed domicile status at the start of the fourth year of non UK residence.

IT and CGT matters

Legislation will allow  a non-UK  domiciled individual who has been taxed on the remittance basis to rearrange and transfer  amounts between overseas mixed fund bank accounts without being subject to the  offshore transfer rules. This will allow the different elements within the  accounts to be separated, thereby allowing clean capital to be remitted to the  UK in priority to income and gains.

The draft legislation also  provides that the market value of an asset at 5 April 2017 will be able to be  used as the acquisition cost for CGT purposes when computing the gain or loss  on its disposal where the asset was situated outside the UK between 16 March  2016 and 5 April 2017. This will apply to any individual who becomes deemed UK domicile  in  April 2017, other than one who is born in the UK  with a UK domicile of origin, provided that individual has been subject to a remittance basis charge for any tax year prior to 2017/18.

UK residential property

Changes are also proposed  for UK residential property. Currently all residential property in the UK is  within the charge to IHT if owned by a UK or non-UK domiciled individual. It is  proposed that all residential properties in the UK will be within the charge to  IHT where they are held within an overseas structure. This charge will apply  whether the overseas structure is held by an individual or trust.

How can we help

Each individual's situation is going to have different problems. Please contact us if you would like to discuss how these rules impact on you and the steps you can take to mitigate their impact.


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