Tax on foreign income: the rules for non-domiciled residents

May 30, 2022 | Uncategorized

You’ll have read in the media a lot about the tax status of ‘non-doms’ and how tax on foreign income works differently to ‘regular’ taxpayers. 

If you make income abroad, these special rules will be important to you if you bring money you earn from abroad into the country and want to know how to keep more of it.

So, here is everything you need to know about the tax rules for non-domiciled residents.

What is a non-dom?

‘Non-dom’ is short for non-domiciled. Your domicile is the country that you consider your permanent home.

For the majority of people, our domicile is the country we or our parents were born in, even if we’ve been living elsewhere for a number of years. 

However, you can change your domicile if you fulfil certain conditions. For the UK, that includes proving that you intend on living there permanently and that you have lived in the country for the last 15 out of 20 tax years.

For tax purposes, it’s important not to get confused with residence, which is used to identify where you consider your short-term home.

If you live in the UK for at least 183 days a year, you are considered to be a UK resident.

Tax for domiciled UK residents

Before we get to the tax status of non-doms, it’s useful to understand how tax on foreign income works for people domiciled in the UK.

UK residents that are also domiciled here are normally taxed on what’s called the ‘arising basis of taxation’. This means that your worldwide income and capital gains will be taxable in the UK, even if those incomes and gains have already been taxed in another country.

You must declare your foreign income and capital gains on your tax return. Don’t worry if you want to work abroad after permanently settling in the UK, though, because you can claim relief if you’re taxed twice.

The arising basis is complex if you have foreign income as you’ll have to declare your worldwide income using a self-assessment tax return. However, you will benefit from the personal allowance for income tax and annual exempt allowance for capital gains tax.

Tax for non-domiciled UK residents

UK residents who are not domiciled in the country can choose whether they use the arising basis of taxation or the remittance basis of taxation. 

With the remittance basis, you will be liable for tax in the normal way on income and gains you make in the UK. The difference is that you’ll only have to pay tax on income that you bring (or ‘remit’) into the country. 

As a reminder, under the arising basis, you pay tax on income when you make it – regardless of whether you bring it into the UK or not.

If you’re making less than £2,000 from overseas sources, the remittance basis applies automatically.

If you make more than that and want to use the remittance basis, you have to pay a charge of at least £30,000 a year.

That means that unless you have very high levels of foreign income, it’s unlikely that the remittance basis will be worthwhile.

Get in touch with us to discuss your tax plan.

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