Taxation of non-domiciled individuals

Many expats are liable to pay UK taxes as well as taxes in their home country; for example, American citizens living in the UK may be double-taxed. To avoid double-taxation and to benefit from UK tax credits and exemptions, individuals should seek professional tax advice.

Expat status

Many expats and individuals don’t realise that their taxes can be significantly affected by what ‘status’ they claim to the UK tax authorities. Taxes depend on whether you are a UK resident, domiciled in the UK, or ordinarily resident, or a combination of these. It is important that individuals choose the proper ‘status’, to make sure that they are not unnecessarily taxed in the UK.

The residency status does not necessarily have to be linked to your citizenship, which makes UK taxes somewhat tricky. Even UK citizens can claim to be non-domiciled individuals if they have a residence outside the UK or claim their birth country as their primary residence, or even the country of their parents’ birth.

Domicile refers to the residency status of an individual. Non-domiciled refers to individuals living in the UK who have another residence outside the UK, or who claim another country as their main domicile. Non-domiciled individuals cannot live in the UK permanently or indefinitely. For tax purposes it is possible to change your residence or domicile status on an annual basis so it is important to seek professional advice on this matter.

Non-domicile status

In general, individuals and expats should seek non-domicile status in the UK, if they can, since this status, also known as non-UK domicile, generally accrues lower taxes than those domiciled in the UK. The reason for this is that the UK government has in the past been interested in attracting wealthy individuals and professionals to live in the UK who do not want to pay taxes in the UK.

However, the Finance Act 2008 has made changes to this special tax status and individuals should seek professional advice to make sure they are not only compliant, but also claim the most beneficial residence status for their taxes.

Before 2008, it was possible for non-domiciled individuals to not pay any UK taxes at all on income or capital gains earned outside the UK, if this income was not brought into the UK. However, since the change to the Finance Act, non-domiciled individuals, for example, who have lived in the UK for seven out of the last ten years will be liable for a £30,000 annual charge if overseas income is over £2,000 that year. However, there are loopholes that only a professional tax advisor can advise on how best one can capitalise on residency status.

The UK has tax treaties with over 100 countries around the world, which helps individuals avoid double taxation issues. Individuals who are not UK citizens should choose a tax professional who not only knows UK tax law but also the tax law in their home country to avoid double-taxation issues.

Please contact a WK tax professional to discuss any tax issues you have.