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Non-domicile tax regime

By Paul Beckwith [email protected]

Paul Beckwith is an International Financial Advisor working with Blacktower Financial Management (International) Limited

A statement by the Treasury Department confirmed that only 5,400 non-domiciles paid the £30,000 remittance charge introduced for the tax year 2008-09.

This was far less than expected. The latest figures available show that 123,000 non-domiciles have paid over £5.9 billion in taxes in 2008-09.

UK residents are generally liable to UK tax on their worldwide income and gains as they arise. This is known as the “arising basis”.

However, where individuals are either: (i) non-UK domiciled but UK Resident (ND); or (ii) not ordinary resident (NOR) in the UK (regardless of domicile, which includes UK domicile), they are able to claim an alternative tax treatment known as the remittance basis.

The remittance basis is a form of UK tax deferral, as there is no actual tax charge when this foreign income or gains arise.

They will only be subject to tax when the growth or income is remitted to the UK. If such foreign income and gains remain offshore permanently, the tax charge is effectively deferred indefinitely.

The decision to use the remittance basis will need to be taken each year. This will depend on the client’s individual circumstances and plans for the coming year.

For example, an investor could be expecting a large offshore income or gain this year and therefore it would be beneficial to use the remittance basis.

However, in the following year if no such gain is expected it may be financially attractive to be taxed on an arising basis.

This means that advisers need to perform regular reviews with investors, ensuring that the appropriate basis of tax is chosen and once again demonstrating the value of advice.

For clients who are NOR, the remittance basis is only available to foreign income. For ND clients, they are able to apply the remittance basis to both foreign income and capital gains.

Clients who elect the remittance basis automatically lose their entitlement to various personal tax allowances, for example all age bands and capital gains tax (CGT) allowances.

These tax allowances are removed regardless of whether the client is a NOR or ND. Therefore, even though a NOR cannot claim remittance on foreign capital gains, they still lose their CGT allowance.

From the tax year 2008-09 onwards, NOR or ND’s who claim the remittance basis will be liable for an annual charge of £30,000 (the Remittance Based Charge – RBC).

It is important to note that the RBC is payable in addition to any UK tax liability. When a client elects the remittance basis, they will have to nominate un-remitted foreign income and gains, which will not be taxed again when they are remitted to the UK. It’s possible to nominate either foreign income or foreign chargeable gains (where allowable).


Paul ND and subject to UK additional rate tax at 50%. In 2010/11 he receives £80,000 in interest paid into his Isle of Man bank account. In his claim in 2010/11, Paul is able to nominate £60,000 (i.e. 60,000 x 50% = 30,000 RBC) of the total £80,000. In 2011/12, Paul receives a further £70,000 of interest paid into his Isle of Man bank account. Paul is only able to nominate foreign income which occurred in the same tax year as his remittance claim i.e. 2011/12. He is not able to use his used 2010/11 non nominated income (i.e. £80,000 – £60,000 = £20,000).

The proposed changes

The Government will introduce the following reforms:

I) remove the tax charge when non-domiciles remit income or capital gains to the UK for the purpose of commercial investment in UK business;

II) simplify some aspects of the current tax rules for non-domiciles to remove undue administrative burden;

III) increase the existing £30,000 annual charge to £50,000 for non-domiciles who have been UK resident for 12 or more years and who wish to retain access to the remittance basis. The £30,000 charge will be retained for those who have been resident for at least 7 of the past 9 years, and fewer than 12 years. This will all be part of a consultation paper issued in June 2011 to determine the detail of these measures. The intention, however, is to implement these reforms from April 2012.

In terms of what this means for a ND client who is approaching 12 or more years as a UK resident, based upon the rules as they currently stand, a client should only elect the remittance basis (i.e. they will pay less tax on an accrued basis) when they are intending to remit £100,000 or more for additional rate tax payers (50%) or £80,000 or more for higher rate tax payers.

Based on current figures the ND population provide a good portion of the UK tax revenue and it is with this in mind that we await the detail of the proposals.

The Chancellor made a statement as part of his Budget speech that no further changes would be made to non-domicile taxation during this parliament. Let’s wait and see.

Please contact us for further details on 289 355 685. Blacktower Group has offices in the United Kingdom, Gibraltar, Portugal, Spain and France. Blacktower Financial Management (International) Ltd is licensed in Gibraltar by the Financial Services Commission (FSC) License No. 00805B Blacktower Financial Management Ltd is Authorised and Regulated in the UK by the Financial Services Authority.