The topic of tax domicile status and how it works has been heavily featured in the news of late, thanks to Chancellor Rishi Sunak’s recent controversy involving his wife Akshata Murty who, it has been revealed, has been claiming non-UK domicile tax status. This means that she does not have to pay UK tax on any of her overseas income, or gains, unless any part is remitted to the UK.

Ms Murty has chosen to be domiciled in India via her billionaire father Narayana Murty.

What is a non-dom?

A non-dom is a UK resident who declares their permanent home, or domicile, outside of the UK.

A domicile is usually the country his or her father considered his permanent home when they were born, or it may be the place overseas where somebody has moved to with no intention of returning. Proof of this status must be provided to HMRC.

If you have non-dom status, you must still pay UK tax on UK earnings, but are not obligated to pay UK tax on foreign earnings. The status can be relinquished at any time.

UK tax statuses

The extent to which an individual is subject to UK tax depends on two things:

• Tax Residence – usually determined by days present in the UK
• Domicile – a concept of common law and based on fact and intention. Domicile is also a key factor in assessing the extent of liability to UK Inheritance tax

UK Tax residence results in tax becoming due on worldwide income and gains generated as it arises. This is the case regardless of where the sources are located.

However, UK Resident, non-UK domiciled taxpayers, can instead choose to claim the remittance basis (RB) of taxation. This potentially allows their overseas income and gains that remain outside the UK to be protected against the UK tax charge. The RB must be claimed via the UK self-assessment tax return.

This effectively allows those who qualify to limit their UK tax liability to sources of income and gains that are actually paid to the UK, or otherwise used in this country.

The RB election is free from any charge for the first 7 years of tax residence. However, after this, individuals must pay £30,000 per tax year to maintain it. The charge increases to £60,000 when an individual has been resident for 12 of the previous 14 tax years. Once 15 years of residence out of the previous 20 tax years is reached, the individual will automatically be deemed domicile in the UK and must pay UK tax on their worldwide income and gains.

Is it worth it?

Where RB is claimed, the individual will lose their entitlement to the UK personal allowance (£12,570) and capital gains annual exemption (£12,300).

If you are an individual with a more modest overseas income, it would be beneficial to seek professional advice, and have comparison tax calculations carried out.

Also, domicile status doesn’t only affect overseas income and gains; it dictates what tax applies on your death. The worldwide estates of UK domiciles are subject to UK inheritance tax at 40%; with only UK assets of non-UK domiciles are subject to UK inheritance tax.

However, you don’t escape the IHT charge forever if you stay in the UK, you are UK domiciled if you are resident in the UK for 15 of the 20 years before the relevant year.

Leaving the UK

If you are a non-UK domicile and you leave the UK, you can cease to be UK resident for six years and return, with the same rules theoretically applying.

However, you may want to think about why you are coming back to the UK and for how long. HMRC may consider that anyone returning may have now acquired a domicile in the UK in law and be coming back because this is truthfully where they want to be.

Individuals doing this may want to think carefully about their motivations and, most importantly, how to provide as much evidence in support of their status as possible.

It is always best to seek expert