Are you really non-UK domiciled and why does it matter?
Many ex-pats have returned to the UK in recent weeks to weather the coronavirus storm. There is a wide range of possibilities. Perhaps they have been recalled to the UK by their employers; maybe they decided that they wished to be back ‘home’ nearer to their elderly relatives who might need assistance; or medical reasons may mean they would prefer to have access to the NHS. Anyone returning to the UK needs to consider the impact this might have on their tax and domicile status.
Depending on timing, such a move might have resulted in an individual having become UK tax resident in the last tax year (ended 5 April 2020). An extended stay in the UK post 6 April 2020 might result in their becoming UK resident in the current 2020 / 2021 tax year. Whilst HMRC helpfully announced that days spent in the UK due to the pandemic could count as exceptional and so be disregarded (up to 60 days) for day count purposes it was not a blanket permission for such days to be excluded, which is discussed further in the blog ‘What is the impact on tax residence status if the coronavirus crisis has kept you in the UK longer than planned?’. Being asked by your employer to return to the UK temporarily as a result of the virus can be regarded as exceptional but whether days spent in the UK can then be disregarded will always depend on the facts and circumstances of each individual case.
Anyone normally resident outside the UK who finds themselves here, whether accidentally or on purpose, will need to keep the number of days spent in the UK below the relevant day count that applies to their specific facts if they wish to retain non-UK residence status. Whilst travel is severely restricted at the moment it is still possible to leave the UK, although the choice of destinations will be limited for many as countries prohibit all but their citizens and certain specific categories of visitor from entering.
The amount of UK tax which an individual is liable to pay is determined by both their residence status and also their domicile. Someone who is non-UK domiciled (non dom) can be resident in the UK for an extended number of years before becoming liable to tax on their worldwide income, gains and assets. Broadly speaking provided that they are resident in the UK for less than 15 out of 20 tax years they can use the remittance basis. This means that they are only taxed on income and gains brought to the UK and are only subject to inheritance tax (IHT) on assets situated in the UK. UK domiciled individuals by contrast are subject to IHT on their worldwide assets.
A UK individual who has been a resident abroad for many years might have acquired a domicile of choice in their country of residence as they intend to stay there indefinitely, or at least have no current intention of leaving it and are non-UK domiciled. Choosing to come back to the UK now, even if it results in their becoming UK tax resident, should not of itself impact on an individual’s chosen domicile status but it could be called into question by HMRC. Did they really establish a domicile of choice abroad?
Special problems for non doms born in the UK
Under rules introduced in 2017, an individual who has a non-UK domicile but was born in the UK with a UK domicile of origin will not be able to use the remittance basis for any year in which they are UK resident. They will also be subject to IHT as if they were domiciled in the UK which means that IHT will potentially be payable on their worldwide assets. It can also impact on the tax status of any trusts which the individual has created. Because the IHT provisions have such a major impact on both individuals and trusts there is a grace period before IHT bites: a single year of residence will not bring an individual within the IHT net. But the rules will apply from the second year of residence. Anyone falling within this ‘formerly domiciled resident’ category who was tax resident in the UK in 2019 / 2020, planning on being non-tax resident in 2020 / 2021, but finds themselves now in the UK unexpectedly needs to consider their position very carefully.