Five tips on being non-domiciled
The non-dom status for UK tax residents is highly valued. Being non-domiciled, you can avoid tax on your foreign income and capital gains by simply not bringing the funds into the UK. You can also avoid inheritance tax on your non-UK assets.
In brief, if you come to live in the UK from another country, you will be most likely considered a UK non-dom, especially in your early years of UK residence. This is provided you were not born in the UK with a UK domicile of origin.
Domicile is where you consider your permanent home to be. It is different from residence. Residence is dependent on the number of days you spend in a country each year. Domicile is more of a long-term concept. You lived there for much of your life, you still live there and you plan to continue to live there indefinitely.
In the UK, you can also be deemed domiciled by virtue of having lived here for more than 15 out of the last 20 years.
Fine, so you’ve arrived in the UK to live here and you’re keen to take advantage of this wonderful tax break. You will spend your foreign income and gains outside of the UK, keep your non-UK assets outside of the UK and hey presto! You’re an international tax winner.
But how do you maintain your non-domiciled status? Surely at some stage, HMRC will decide you are now here to remain indefinitely?
And yes, you are correct. Mindful of the 15/20 rule, could you become the UK domiciled before 15 years are up? Yes, you can. How? This depends entirely on your circumstances and intentions. And is it possible to avoid that happening? Yes again.
Here we set out five different ways to enhance the retention of your UK non-dom status. It’s all about the links you have to your former country (we’ll call it Country Z here).
1. Maintain personal links with Country Z. This may include:
- having close family and friends in Country Z and being in regular communication with them.
- visiting your family and friends there at regular intervals (Covid-19 regulations permitting).
- membership of a social club (golf perhaps), a religious community, political party, etc.
- maintaining a personal bank account there.
- having a burial plot in Country Z, which shows an intention to return there. Care must be taken with this one to show that you really intend to return to Country Z to live there for a significant period. In a 2019 appeal, a gentleman from India who had lived in the UK for many years returned to India, knowing he would probably die within a few weeks. The High Court Judge said that “Indeed, even if the deceased had travelled to India intending to die there, this would not, in my judgement, be an abandonment of his [UK] domicile …”
- maintaining proficiency in Country Z’s language for yourself, your spouse and children.
2. Maintain business links in Country Z
Owning shares or having directorships in active companies in Country Z are very useful. It could be useful to show you have entered into new ventures there down the years, especially in the period preceding an intended move there.
3. Having investments in Country Z
These could be shares in investment companies there, property owned there, or other such passive investments. Having a property there which you use when you go back there for visits is a strong link.
4. Demonstrate clear intentions to return to Country Z
If HMRC enquires into a domicile case, a vague statement to the effect that “I always intended to leave the UK” won’t hold water.
Evidence of a definite intention to return may include (as relevant):
- having or actively seeking an abode you will use when you return indefinitely.
- checking and, nearer the time, actively seeking work in Country Z.
- checking out schools/universities/colleges for your children in Country Z.
- showing evidence of your intention to return once the political regime in Country Z changes.
- making or updating a will in Country Z.
- maintaining citizenship and a passport of Country Z
- updating your voter registration in Country Z
5. Demonstrate clear intentions to leave the UK
This could be evidence of a fairly specific event or condition or a time which will trigger your leaving the UK and may include (as relevant):
- evidence of intention to leave once your children are fully UK educated.
- initiating contact with removal firms.
- advising your children’s schools at an early stage when they will be leaving, and why.
- initiating contact with estate agents regarding selling your UK house.
- having a pattern of entering into short lets.
- entering into short-term employment contracts or changing your status from employed to self-employed with short-term contracts.
- of an intended UK retirement date.
There are a myriad of other actions you can take to support the maintenance of your links with Country Z. I had a UK resident client claiming Italian domicile and one of his arguments was that he and his UK-based family all supported Italy at football (they are a very happy family right now!). Another who had set up and actively headed a family charitable foundation in his country of origin. All the above factors are pieces in a puzzle that will help create a picture of an intention to return to Country Z. The important thread running through all of these is the ability to show HMRC, if need be, that the intentions are backed by demonstrable actions and are not just paying lip service.
If all else fails, there is the fallback of leaving the UK to become a resident in another country for at least six years, and then returning. This resets the 15 out of 20 years clock and will circumvent the deemed domicile 15/20 rule. That said, other factors must still be in place to show that a domicile exists elsewhere than in the UK.