The UK tax system can be complex, and for those who have assets or income in multiple jurisdictions, it can be particularly challenging to navigate. However, for those who are considered non-domiciled (non-dom) in the UK, there are several effective arrangements that can help to minimize their UK tax liability.
What does it mean to be non-domiciled in the UK?
In the UK, individuals who are considered non-domiciled are not considered to have their permanent home or “domicile” in the UK, even if they have been living in the country for an extended period of time. Non-domiciled individuals can be subject to different tax rules than those who are considered domiciled in the UK, which can offer several advantages.
Effective non-dom arrangements
- Remittance basis of taxation: One of the most common ways that non-domiciled individuals can reduce their UK tax liability is by using the remittance basis of taxation. This allows non-domiciled individuals to only pay UK tax on income and gains that they bring into the country, rather than on their worldwide income and gains. The remittance basis can be particularly useful for those who have significant income or assets outside of the UK.
- Offshore trusts: Another effective arrangement for non-domiciled individuals is to use offshore trusts. By setting up a trust in a jurisdiction outside of the UK, non-domiciled individuals can transfer assets into the trust, which can then be managed and distributed by the trustees. The income and gains generated by the trust can be taxed in the country where the trust is located, which can be a lower tax jurisdiction than the UK.
- Dual contracts: Non-domiciled individuals who have employment income in the UK may be able to use dual contracts to reduce their UK tax liability. This involves splitting their employment contract into two separate contracts, with one contract covering their work outside of the UK and the other covering their work within the UK. The income earned under the overseas contract can then be taxed in the country where the work is carried out, rather than in the UK.
- Business investment relief: For non-domiciled individuals who want to invest in a UK business, the business investment relief scheme can be an effective arrangement. This allows non-domiciled individuals to bring funds into the UK to invest in a qualifying UK business, without triggering a UK tax liability.
- Non-domiciled spouse/civil partner: If a non-domiciled individual is married to or in a civil partnership with a UK domiciled individual, they may be able to take advantage of the spouse/civil partner exemption. This allows them to transfer assets to their spouse/civil partner without triggering a UK tax liability.
For non-domiciled individuals in the UK, there are several effective arrangements that can help to reduce their UK tax liability. By using the remittance basis of taxation, offshore trusts, dual contracts, business investment relief, and the spouse/civil partner exemption, non-domiciled individuals can take advantage of the different tax rules that apply to them. However, it is important to seek professional advice before implementing any of these arrangements, as they can be complex and require careful planning to ensure they are effective.
include elements like annual non dom charges after 7 years of tax residency and compared to recognizing foreign income into the uk for a tax resident that is non dome
Another important aspect to consider for non-domiciled individuals in the UK is the annual non-dom charges that may apply after 7 years of tax residency. Under the current UK tax rules, non-domiciled individuals who have been tax resident in the UK for at least 7 out of the previous 9 tax years are subject to an annual charge. The amount of the charge depends on the individual’s circumstances and can range from £30,000 to £90,000 per year.
However, non-domiciled individuals who have been tax resident in the UK for less than 7 years can still take advantage of the remittance basis of taxation, as described earlier in this article, without being subject to the annual charge. This can be a significant benefit for those who are planning to move to the UK or who have recently arrived in the country.
It’s also important to note that non-domiciled individuals who become tax resident in the UK may have the option to recognize their foreign income and gains in the UK rather than using the remittance basis of taxation. This can be beneficial for those who have foreign income or gains that are taxed at a lower rate in the UK than in the country where they were earned. However, recognizing foreign income and gains in the UK may also increase an individual’s overall UK tax liability, so careful planning is required.
Comparing the two options, recognizing foreign income and gains in the UK may be a more attractive option for non-domiciled individuals who have been tax resident in the UK for more than 7 years and are subject to the annual non-dom charges. By recognizing their foreign income and gains in the UK, they may be able to reduce their overall tax liability and avoid the annual charges.
Non-domiciled individuals in the UK have several options available to them for managing their tax liability, including the remittance basis of taxation, offshore trusts, dual contracts, business investment relief, and the spouse/civil partner exemption. However, it’s important to consider the potential impact of the annual non-dom charges and the option to recognize foreign income and gains in the UK when planning an effective tax strategy. Seeking professional advice can help to ensure that the most appropriate and effective arrangements are put in place.
In conclusion, non-domiciled individuals in the UK have several options available to them for managing their tax liability, including the remittance basis of taxation, offshore trusts, dual contracts, business investment relief, and the spouse/civil partner exemption. However, it’s important to consider the potential impact of the annual non-dom charges and the option to recognize foreign income and gains in the UK when planning an effective tax strategy. Seeking professional advice can help to ensure that the most appropriate and effective arrangements are put in place.