London property for non domicile buyers

The information on this page is an essential introduction for London property for non domicile buyers about the changes that have recently taken place which will affect non-domicile residents in London. If you are planning to acquire a house in London and are concerned about the changes, please speak to a qualified lawyer, accountant or independent financial adviser for further advice.

As a result of the UK Finance Act 2008, the way the UK taxes the foreign income of people who are resident in the UK but are not domiciled here changed radically.

These changes came into effect on 6 April 2008.

Domicile is a concept of general law and is not the same as residence or nationality. A person can be resident in the UK but have a domicile in another country. An individual’s domicile is usually acquired at birth and could be:

• the country a person considers their permanent home
• the country which a person’s father considered to be his ‘home country’ at the time of their birth or if their parents were not married, their mother’s ‘home country’
• for women married before 1974 domicile is “acquired” from their husband when they married

 Tax residence in the UK is a complex subject. Basically an individual is resident in the UK if they are here for 183 days or more in the tax year. Even if a person is in the UK less than 183 days they might, in certain circumstances, still be considered resident in the UK.

When calculating the number of days spent in the UK, a person must count the total number of days they spend in the UK during a tax year. A day spent in the UK is any calendar day ending at midnight, when an individual is physically present in the UK.

The UK operates a self assessment tax system which means that people have to tell HM Revenue & Customs about their income and tax liabilities. The UK’s tax year ends on 5 April and a self assessment return must be filed and any tax due paid by the following 31 January (assuming the return is filed on-line).

People, who are resident in the UK, but who are not domiciled here, are entitled to claim the “remittance basis” of taxation.  They are taxed on income and gains arising in the UK and are also taxed on any non-UK income or gains ‘remitted’ to the UK - In this context remitted means brought into or enjoyed in the UK. These resident non-UK domiciles are not taxed on foreign income and gains which remain outside the UK.

However following the changes in Finance Act 2008 some people who use the remittance basis will:
- lose entitlement to UK personal tax allowances
- have to pay a “Remittance Basis Charge” (RBC) of £30,000

People with less than £2,000 unremitted foreign income or gains in a tax year, are unaffected by the 2008 changes. They will still be able to use the remittance basis and will keep their entitlement to UK personal tax allowances. They need not pay the RBC.

Those people who are UK resident but domiciled elsewhere with £2,000 or more in unremitted foreign income and gains, who wish to use the remittance basis, must make a claim for this on a self assessment return.

People who are over 18 years old in the tax year they make the claim but who have not been resident in the UK for at least seven of the last nine tax years, do not need to pay the £30,000 RBC. They still have to pay UK tax on any income or gains they ‘remit’ to the UK and they will lose their entitlement to UK personal tax allowances and to the annual exempt amount for capital gains tax.

People claiming the remittance basis who have £2,000 or more in unremitted foreign income and/or gains and have been resident in the UK for at least seven of the previous nine tax years, will have to pay the RBC. These people are sometimes termed long-term resident non-domiciles and it is this group which has been affected by the 2008 changes.

Of course people entitled to the remittance basis may choose not to claim it. They will be taxed on worldwide income and gains for that tax year. But the RBC will not apply and they will be entitled to UK personal tax allowances and to the annual exempt amount for capital gains.

People entitled to claim the remittance basis are able to decide on a year by year basis whether they want to do so. 

Planning

For long term resident non-UK domiciles the choice is between paying UK tax on world wide income or paying the £30,000 RBC annually.

Paying the £30,000 RBC only makes sense if the tax on non-UK income and gains exceeds that figure. Each affected individual needs to make an appropriate “planning calculation” annually.

There are some strategies which could be adopted to improve the tax position of the long term UK resident non-UK domicile and specialist advice should be taken from a lawyer, accountant or independent financial adviser.