Understanding UK Taxes for Expats and Non-Doms

Expats and non-doms are currently subject to specific tax rules and treatment in the UK. This is because an individual’s obligation to pay personal taxes in the UK is primarily influenced by their tax residency and domicile status. Other significant factors include the location of their assets (where they are situated for tax purposes) and the origins of their income and capital gains.

This is a complex area, where the application of relevant rules is required to ensure compliance with obligations to calculate, pay and report UK tax liabilities.

A further complication in this area is that the current tax regime for UK resident non-domiciled individuals (non-doms) is set to be abolished from 6 April 2025.

In the March 2024 Budget, the Conservative government proposed ending the existing tax regime for non-UK domiciled individuals. After the Labour Party came into power, they released a policy document on 29 July confirming that they will proceed with abolishing the non-dom tax regime. From 6 April 2025, it will be replaced by a new residence-based system.

In this article, we will explore the key aspects of UK tax laws that affect expats and non-domiciled individuals (non-doms). We will define who qualifies as an expat and a non-dom, outline the tax residency rules, and delve into the specific tax obligations for each group. We also update on the upcoming reforms to non-domiciled status.

 

Section A: Defining Expats & Non-Doms

 

The terms ‘expats’ and ‘non-domiciled’ individuals have distinct meanings and implications under UK tax laws, impacting how individuals are taxed and what benefits or obligations they may have.

 

1. What is an Expat?

 

An expat, short for expatriate, is a person who resides outside their native country. In the context of the UK, an expat typically refers to a British citizen or resident who lives and works abroad. However, the term can also apply to foreign nationals who have moved to the UK for work or other reasons. The key aspect of being an expat is the temporary or indefinite relocation to a country different from one’s home country.

Common scenarios include:

 

a. British Citizens Working Abroad: A British citizen employed by a multinational company relocates to its overseas office for a few years or an academic taking up a research position at a foreign university.

b. Foreign Nationals in the UK: A US citizen working in the UK under a temporary employment contract or an Australian professional on a short-term assignment in London.

c. Retired Individuals: A retiree moving to a warmer climate, such as Spain or Portugal, while retaining UK citizenship.

 

In all these scenarios, the individuals maintain some level of connection to their home country, either through citizenship, family ties, or financial interests, but live primarily in a different country for work, study, or retirement.

 

2. What is a Non-Dom?

 

A non-domiciled individual, or non-dom, is a person who resides in the UK but considers their permanent home, or domicile, to be outside the UK. The concept of domicile is distinct from residency; it is about where a person’s permanent home is located and where they plan to eventually return.

Non-doms can benefit from special tax rules that allow them to avoid paying UK tax on foreign income and gains, provided these are not ‘remitted’ to the UK.

The concept of non-domicile has deep roots in British common law, originally developed to determine the jurisdiction for legal matters such as inheritance. Historically, non-dom status provided significant tax advantages, making the UK an attractive location for wealthy individuals with international income streams.

In recent years, the UK government has introduced reforms to tighten the rules around non-dom status, aiming to balance the attractiveness of the UK for foreign wealth while ensuring fair tax contributions.

 

3. Implications of Residency

 

Any obligation to pay UK tax will be mainly decided by a person’s residence and domicile status, that is, whether they hold the status of resident and where their permanent place of dwelling is located.

The starting point for deciding whether you have an ongoing liability to pay UK taxes, especially if you maintain ties with the UK, is to decide whether you are a non-resident for tax purposes and when this happened.

For the purpose of taxation, an individual may be treated as a resident in more than one country in accordance with each country’s domestic tax laws. Where there is a double taxation agreement (DTA) between the UK and the other country, this will include a ‘tie-breaker’ clause to decide which country the individual should be treated as a resident in for tax purposes. The UK has DTAs in place with many countries throughout the world.

 

Section B: UK Tax Residency Rules

 

The UK has specific rules and tests to ascertain an individual’s tax residency status, which directly impacts how their income and gains are taxed. The primary methods used to determine tax residency are the Statutory Residence Test (SRT) and the Split Year Treatment.

 

1. Statutory Residence Test (SRT)

 

The Statutory Residence Test (SRT) is the primary tool used to determine whether an individual is a UK tax resident. Introduced in 2013, the SRT is a structured test comprising three main parts:

 

Part 1: Automatic Overseas Tests

You will be classified as ‘automatically’ non-resident for a tax year if you satisfy at least one of the automatic overseas tests:

 

i. You are automatically non-resident if you spent fewer than 16 days in the UK during the tax year and were a UK resident in one or more of the previous three tax years or,

ii. You are automatically non-resident if you spent fewer than 46 days in the UK during the tax year and were not a UK resident in the previous three tax years or,

iii. You work full-time overseas without significant breaks and spend fewer than 91 days in the UK, with no more than 30 days spent working in the UK.

 

Part 2: Automatic UK Tests

You are deemed ‘automatically’ resident for a tax year if you do not meet any of the above automatic overseas tests but you satisfy at least one of the following automatic UK tests:

 

i. You are automatically UK-resident if you spent 183 or more days in the UK during the tax year.

ii. You have a home in the UK for at least 91 consecutive days, and you spend at least 30 days in that home during the tax year, and either have no overseas home or spend fewer than 30 days in that overseas home.

iii. You work full-time in the UK for any period of 365 days, with at least one day falling in the tax year, with no significant breaks from UK work.

 

Part 3: Sufficient Ties Test

If neither the automatic overseas tests nor the automatic UK tests apply, your residency status will be determined by the sufficient ties test. This test considers both the number of days you spend in the UK and the ties (connections) you have to the UK, such as:

 

i. Family ties (having a spouse or minor children in the UK)
ii. Accommodation ties (having a place to live in the UK)
iii. Work ties (working in the UK)
iv. 90-day ties (spending more than 90 days in the UK in either of the previous two tax years)
v. Country ties (if you spent more time in the UK than in any other single country)

 

Income Range	Tax Rate (Arising Basis)	Tax Rate (Remittance Basis)
Up to £12,570	0%	0%
£12,571 to £50,270	20%	20% on UK income only
£50,271 to £125,140	40%	40% on UK income only
Over £125,140	45%	45% on UK income only

 

2. Split Year Treatment

 

The split-year treatment applies when an individual’s tax residency status changes partway through a tax year. Instead of being treated as a UK resident or non-resident for the entire year, the year is split into a UK part and an overseas part. This treatment is beneficial for those who move to or leave the UK, ensuring they are only taxed as a UK resident for the part of the year they were actually living in the UK.

To qualify for Split Year Treatment, specific conditions must be met, categorised into eight cases, including starting full-time work abroad, accompanying a spouse or partner who starts full-time work abroad, and ceasing to have a home in the UK.

The eight specific cases for split year treatment include:

 

Case 1: Starting Full-Time Work Abroad

You leave the UK to start full-time employment abroad, working at least 35 hours per week. You spend no more than 90 days in the UK and work no more than 30 days in the UK during the overseas part of the year.

 

Case 2: The Partner of Someone Starting Full-Time Work Abroad

You accompany your spouse or civil partner who starts full-time work abroad, and you also leave the UK to live with them. You meet similar conditions regarding the days spent in the UK as in Case 1.

 

Case 3: Ceasing to Have a Home in the UK

You no longer have a home in the UK at any point during the tax year and establish your only home overseas. To qualify, you must not have spent more than 15 days in your former UK home.

 

Case 4: Starting to Have a Home in the UK

You move to the UK and establish your only or main home there. You become a UK resident from the day you arrive, provided you had no previous home in the UK during the tax year.

 

Case 5: Starting Full-Time Work in the UK

You move to the UK and begin full-time work, working at least 35 hours per week. You become a UK resident from the day you start work, provided that this was your primary reason for moving to the UK.

 

Case 6: Returning to the UK after Full-Time Work Abroad

You return to the UK after a period of full-time work abroad and become a UK resident again. This applies if you were previously non-resident and then resumed UK residency after finishing your overseas employment.

 

Case 7: The Partner of Someone Returning to the UK

You accompany your spouse or civil partner who is returning to the UK after full-time work abroad, and you also return to live with them. Your residency status changes from the date of your return.

 

Case 8: Ceasing Full-Time Work Abroad and Not Continuing to Work in the UK

You stop working full-time abroad and do not continue to work full-time in the UK. You may return to the UK for other reasons, such as retirement, and become a UK resident from the day you return.

The rules governing split year treatment are complicated, and specialist advice is recommended to avoid misapplication of the regulations.

 

3. Case Studies

 

The following examples illustrate how the SRT and Split Year Treatment are applied in real-life scenarios:

 

Case Study 1: John – Determining Tax Residency Using the SRT

John, a British citizen, spent the last five years working in Singapore. He returned to the UK on 1 June of the current tax year. When assessing his tax residency status using the Statutory Residence Test (SRT), the Automatic Overseas Test does not apply, as John returned to the UK during the tax year. However, the Automatic UK Test is applicable because John spent more than 183 days in the UK after his return. As a result, John is considered a UK tax resident for the entire tax year based on his fulfilment of the Automatic UK Test criteria.

 

Case Study 2: Maria – Applying Split Year Treatment

Maria, a Spanish citizen, moved to the UK for a new job that commenced on 1 September. Prior to this, she lived and worked in Spain for the first part of the tax year. In this scenario, Maria qualifies for Split Year Treatment because she began full-time work in the UK. The tax year is, therefore, divided into two distinct periods: the overseas part (before 1 September) and the UK part (from 1 September onwards). Consequently, Maria is subject to UK tax residency only from 1 September onwards, with the earlier months being treated as non-resident.

 

Case Study 3: James – Applying the Sufficient Ties Test

James spent 150 days in the UK during the tax year. He maintains a home in the UK, where his wife and children reside, and also works part-time in the UK. To determine his tax residency status, the Sufficient Ties Test is applied. James has significant connections to the UK, including family, accommodation, and work ties. Given that he spent more than 90 days in the UK and has three sufficient ties, James is classified as a UK tax resident based on these substantial connections and the duration of his stay in the country.

 

Section C: UK Tax Obligations for Expats

 

Expats, whether British citizens living abroad or foreign nationals residing in the UK, need to be aware of how their income, investments, and assets are taxed in the United Kingdom.

 

1. Income Tax

 

Many expats mistakenly believe that once they have left the UK to live overseas, they are no longer subject to UK tax, but the situation isn’t as clear-cut or straightforward as that. An expat living abroad may still be liable to pay taxes on any UK income they receive.

 

a. Worldwide Income vs. UK Income

Expats are subject to UK income tax based on their tax residency status. If an expat is a UK tax resident, they are generally taxed on their worldwide income. This includes earnings from employment and self-employment, foreign investments and savings, rental income from overseas properties and pensions.

If an expat is not a UK tax resident, they are only taxed on their UK-sourced income. This includes income from UK employment, rental income from UK properties and interest from UK bank accounts.

 

b. Double Taxation Agreements

To avoid the problem of being taxed twice on the same income by both the UK and another country, the UK has entered into Double Taxation Agreements (DTAs) with many countries. These agreements provide relief from double taxation by allowing tax paid in one country to be offset against tax due in the other country and determining which country has taxing rights over certain types of income.

Expats can claim relief under a DTA by completing the relevant sections of their tax return and providing proof of tax paid abroad.

 

2. National Insurance Contributions

 

National Insurance (NI) contributions have to be made for individuals to qualify for certain state benefits and the State Pension in the UK. The specific rules governing NI contributions differ depending on whether an expat is working within the UK or abroad.

For expats working in the UK, they are required to pay NI contributions if they are either employed or self-employed. For employees, these contributions are automatically deducted from their wages. Those who are self-employed must pay their contributions through the self-assessment system.

For expats working abroad, maintaining eligibility for state benefits and the State Pension may still necessitate paying NI contributions. Expats working temporarily in a European Economic Area (EEA) country or in a country with a social security agreement with the UK can apply for a certificate of continuing liability, which allows them to continue paying UK NI contributions. Additionally, expats have the option to make voluntary contributions to prevent gaps in their NI record, which could affect their future entitlements.

 

3. Capital Gains Tax

 

Capital Gains Tax (CGT) may be chargeable against the profit made from selling or disposing of assets such as property, shares, or investments.

The specific rules governing CGT for expats vary based on their residency status.

For those who are UK tax residents, there is an obligation to pay CGT on gains from worldwide assets. However, they can benefit from the annual CGT allowance to reduce the amount of taxable gains.

In contrast, non-residents are generally not liable to UK tax on capital gains from the disposal of UK assets. However, there are three notable exceptions to this rule.

First, a non-resident individual or trust that conducts business in the UK through a branch or agency is liable to pay tax on UK assets used or held for the purposes of that trade or branch. This also applies to companies trading in the UK through a permanent establishment.

Second, certain anti-avoidance laws treat capital gains as income, making them taxable even when they accrue to a non-resident.

Lastly, if an individual is non-resident for fewer than five complete tax years, they may be taxed in the year they return to the UK on gains made during their absence on assets they owned when they left the country. This rule does not apply to those who were resident in the UK for fewer than four of the seven tax years prior to their departure.

It is important to note that gains made on assets acquired during the period of absence are not subject to this rule, and any tax charge may be affected by applicable treaties.

As such, non-residents are only liable to pay CGT on gains arising from UK residential property. When non-residents sell UK property, they must report the sale and pay any tax due within 30 days of the transaction’s completion.

To ensure accurate calculation of CGT liability, expats are advised to maintain detailed records of their asset purchases, sales, and any associated costs.

 

4. Inheritance Tax

 

Inheritance Tax (IHT) is levied on the estate, including property, money, and possessions, of an individual who has passed away. For expats, the impact of IHT largely depends on their domicile status and the location of their assets.

Expats who are domiciled in the UK are subject to IHT on their entire worldwide estate. The standard rate of IHT is 40% on the portion of the estate that exceeds the tax-free threshold, which is currently set at £325,000. However, transfers of assets to a surviving spouse or civil partner are typically exempt from IHT, providing some relief. Other exemptions and reliefs may also be available depending on the circumstances. Professional advice should be sought to ensure optimised use of IHT reliefs and exemptions.

On the other hand, non-domiciled expats are only liable to IHT on their UK-based assets. While they may benefit from the remittance basis of taxation for other types of taxes, careful planning is essential to manage their IHT obligations effectively.

 

5. Case Study

 

Sarah, a British citizen, relocated to France for work. She owns a rental property in the UK and holds investments in both the UK and France. As a non-resident for UK tax purposes, Sarah is only liable to pay tax on her UK rental income, while her earnings from France are not subject to UK taxation. To avoid being taxed twice on the same income, she makes use of the UK-France Double Taxation Agreement (DTA).

In terms of National Insurance Contributions, Sarah, who has been temporarily posted to France by her UK employer, obtains a certificate of continuing liability. This certificate ensures that she continues paying UK National Insurance contributions while working abroad.

When Sarah decides to sell her UK rental property, she must comply with the UK’s Capital Gains Tax (CGT) rules. As a non-resident, she is required to report the sale and pay any CGT owed within 30 days of the transaction.

Despite her move to France, Sarah remains domiciled in the UK. Consequently, her worldwide estate is still subject to UK Inheritance Tax (IHT). Aware of the potential implications, Sarah plans to seek professional advice to manage her IHT exposure effectively.

 

Section D: UK Tax Obligations for Non-Doms

 

Non-domiciled individuals (non-doms) in the UK currently enjoy specific tax rules that can offer significant benefits, particularly regarding income and gains originating outside the UK.

However, the non-dom taxation regime is set to be overhauled, with the current tax treatment for UK resident non-domiciled individuals due to be abolished from 6 April 2025.

This section will set out the current rules and provides an overview of the new system which is due to be implemented from April 2025.

 

1. Income Tax

 

If you are classed as UK resident and are domiciled (or deemed domiciled) here, you are liable to tax on the ‘arising basis’. This means that all your worldwide income and chargeable gains will be taxable in the UK.

However, non-domiciled UK residents have the choice to be subject to either the arising basis or ‘remittance’ based taxation for their foreign income and gains.

Under the arising basis, non-doms are taxed on their worldwide income and gains as they arise, just like UK residents. This means all income and gains, regardless of where they are earned, are subject to UK tax.

Under the remittance basis, whilst any income and capital gains arising in the UK will remain taxable in full for the tax year in which they arise, you will only pay UK tax on any foreign income or gains to the extent that these are brought, or remitted, to the UK, to help prevent double taxation.

By claiming the remittance basis, you have to file a self-assessment tax return and you will lose any available personal tax allowances and exemptions for your foreign income and gains. The effect is that you are liable to pay UK tax on all your other taxable income, without any entitlement to tax-free allowance.

If you are a long-term resident in the UK, you will also have to pay a remittance basis charge for each year you use the remittance basis of taxation.

There are two levels of remittance basis charge, depending on your period of UK residence:

 

a. £30,000 for non-doms who have been resident in the UK for at least 7 of the previous nine tax years immediately before the relevant tax year.

b. £60,000 for non-doms who have been resident in the UK for at least 12 of the previous 14 tax years immediately before the relevant tax year.

 

In certain limited circumstances, you may be exempt from losing your personal tax allowance or annual exemption on gains while claiming the remittance basis or from paying the remittance basis charge while using the remittance basis. Take professional advice on the options available to you.

 

2. Capital Gains Tax

 

Non-doms who choose the arising basis are subject to UK CGT on their worldwide gains as they occur. This means that any profits made from selling or disposing of assets, whether located in the UK or abroad, are taxable in the UK. The arising basis may be preferable for non-doms who anticipate lower tax liabilities abroad or those who want to simplify their tax affairs by paying UK tax on all their global gains.

Alternatively, non-doms can opt for the remittance basis, which significantly alters how CGT is applied. Under this system, non-doms are only liable to UK CGT on gains from UK-based assets and on foreign gains that are remitted or brought into the UK. This option can be highly advantageous for non-doms with substantial foreign investments, as it allows them to defer or even avoid UK CGT on gains made from these assets, provided the proceeds remain outside the UK.

For example, consider a non-dom who sells shares in a foreign company at a profit. If the remittance basis is chosen, the gain from this sale would not be subject to UK CGT unless the proceeds are transferred to the UK. This flexibility makes the remittance basis an attractive option for non-doms who maintain significant wealth abroad and prefer to manage their tax liabilities strategically.

However, it is important to note that opting for the remittance basis has other implications, such as the potential loss of certain UK tax allowances and reliefs, and, for long-term UK residents, it may involve paying the remittance basis charge. Non-doms must carefully weigh the benefits and drawbacks of each option, taking into account their personal financial situation and long-term residency plans.

 

3. Inheritance Tax

 

Inheritance Tax (IHT) in the UK is closely linked to an individual’s domicile status, which plays a crucial role in determining the extent of their tax liability.

Individuals who are UK-domiciled or deemed domiciled are liable to IHT on their entire worldwide estate. This includes all assets, whether located in the UK or abroad.

A non-dom is considered deemed domiciled for IHT purposes if they have been resident in the UK for 15 out of the previous 20 tax years.

Additionally, those who were originally domiciled in the UK but later acquired a domicile of choice elsewhere, only to return to the UK, are also deemed domiciled for IHT purposes. This status can significantly increase the scope of their IHT liability, making it imperative for such individuals to engage in careful tax planning.

On the other hand, non-UK domiciled individuals have a distinct advantage when it comes to IHT. They are only liable to pay IHT on their UK-based assets, such as property, while their foreign assets remain outside the scope of UK IHT. This provides substantial opportunities for tax planning, as non-doms can structure their estate in a way that minimises their IHT exposure by keeping significant portions of their wealth in foreign assets.

For instance, consider a non-dom who owns a property in the UK and has substantial investments overseas. Under current UK IHT rules, only the UK property would be subject to IHT, while the foreign investments would not be included in the taxable estate. This scenario illustrates the potential tax benefits of maintaining non-dom status and strategically managing asset locations.

However, it is important for non-doms to regularly review their domicile status and the composition of their estate, especially if they plan to spend significant time in the UK. Changes in residence patterns or the acquisition of UK assets can alter their tax obligations, particularly if they become deemed domiciled. Consulting with a tax professional can help non-doms navigate these complexities, ensuring that they make informed decisions that align with their long-term financial goals.

 

4. New Rules from April 2025

 

From 6 April 2025, the current remittance basis of taxation for UK resident non-domiciled individuals will be abolished. It will be replaced by a new 4-year foreign income and gains (FIG) regime. This regime will apply to individuals who become UK tax residents after a period of 10 tax years of non-UK residence.

 

a. New FIG Regime

Under the new regime, qualifying individuals will not be taxed on foreign income and gains that arise during the first four tax years after they become UK tax residents. They will also be allowed to bring these funds into the UK without facing additional charges. They will also not be taxed on distributions from non-resident trusts. However, they will still be liable for tax on UK income and gains, just as non-domiciled individuals are under the current system.

For those who have been UK tax residents for less than four years as of 6 April 2025, after spending ten years as non-UK residents, this new regime can be used for any remaining tax years within that four-year period.

Overseas Workday Relief (OWR) will be retained and simplified for the first three tax years of UK residence. Eligibility for OWR from 6 April 2025 will depend on the individual’s residence status and whether they opt to use the new 4-year FIG regime.

From 6 April 2025, protections from taxation on future income and gains within trust structures will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the new 4-year FIG regime. FIG arising in non-resident trust structures from this date will be taxed on the settlor or transferor, provided they have been UK residents for more than four tax years. This will be on the same basis as UK domiciled settlors or transferors are currently taxed. FIG that arose in the trust before 6 April 2025 will be taxed on the settlors or beneficiaries if matched to worldwide trust distributions.

 

b. Transitional Provisions

Individuals who currently hold non-dom status and will transition from the remittance basis to the arising basis on 6 April 2025, due to their ineligibility for the four-year FIG regime, will have access to some transitional relief.

However, this relief will be less generous than what was proposed by the previous Conservative government. Notably, the new Labour government will not introduce the previously proposed 50% reduction in tax on foreign income for those losing access to the remittance basis on 6 April 2025.
There will be a rebasing of foreign capital assets for certain individuals, with the specific rebasing date expected to be announced in the Autumn Budget on 30 October 2024. Business Investment Relief will also remain available.

A Temporary Repatriation Facility (TRF) will be introduced for FIG that arose for former remittance basis users before 6 April 2025, though the tax rate and duration have yet to be confirmed. The government has indicated that they intend to make the TRF as attractive as possible. Further details, including whether the TRF will extend to stockpiled income and gains within offshore structures, will also be provided at the Budget.

Finally, from 6 April 2025, the government plans to shift the inheritance tax system from a domicile-based regime to a residence-based regime, although this change will be subject to consultation.

 

Section E: Tax Benefits and Reliefs

 

The UK tax system offers various benefits and reliefs to expats and non-doms, helping them to manage their tax liabilities more effectively. These benefits can include reliefs for income earned abroad, credits for foreign taxes paid, and special rules for non-doms that can significantly reduce their tax burden.

 

1. Tax Relief for Expats

 

Overseas Workday Relief (OWR) is an advantageous benefit for expats who split their working time between the UK and other countries. It enables UK residents who are non-domiciled to exclude from UK taxation the portion of their income earned through duties performed outside the UK. This relief is particularly beneficial during the first three years of UK residence.

To qualify for OWR, an expat must be non-domiciled in the UK and within the first three years of their UK residency. It is essential for the expat to maintain thorough records of the days spent working abroad, as well as the income earned during those periods. These detailed records are necessary to accurately calculate the portion of income that can be excluded from UK taxation.

Under the OWR scheme, earnings from overseas workdays are not subject to UK tax, provided that the income is not brought into the UK. To ensure this, the expat must use a designated “overseas workday” bank account to receive the earnings. For example, if an expat spends 60% of their working days outside the UK, they can exclude 60% of their salary from UK tax, as long as these earnings are deposited in an overseas account and are not remitted to the UK.

The UK also provides foreign tax credits to prevent double taxation on income earned abroad. These credits allow expats to offset the tax paid in a foreign country against their UK tax liability on the same income, ensuring that they do not pay more tax than necessary.

To be eligible for foreign tax credits, an expat must be a UK tax resident, and the foreign income in question must be subject to taxation in both the UK and the foreign country. The credit available is typically the lower amount between the foreign tax paid and the UK tax due on that income. Expats must provide documentation, such as tax returns or payment receipts, to prove the foreign tax paid.

For instance, consider an expat who earns £50,000 in a foreign country and pays £10,000 in taxes to that country. If the UK tax on this income would be £12,000, the expat can claim a foreign tax credit of £10,000, thereby reducing their UK tax liability to £2,000. This system ensures that expats are not unduly burdened by double taxation on their foreign earnings.

 

2. Tax Relief for Non-Doms

 

Non-domiciled individuals (non-doms) in the UK have the option to benefit from the remittance basis of taxation, which allows them to exclude foreign income and gains from UK tax unless these funds are brought into the country. To take advantage of this, non-doms may choose to pay a remittance basis charge. This charge is particularly relevant for those who have been resident in the UK for an extended period.

The remittance basis charge applies to non-doms who have been UK residents for at least 7 of the previous nine tax years, in which case the charge is £30,000. For those who have been residents for at least 12 out of the previous 14 tax years, the charge increases to £60,000. By paying this annual fee, non-doms can avoid being taxed on their worldwide income and gains, provided these are not remitted to the UK. For example, a non-dom who has resided in the UK for ten years and opts for the remittance basis would pay a £30,000 charge but would not be liable for UK tax on £500,000 of foreign income kept outside the UK.

In addition to the remittance basis, non-doms can also benefit from various exemptions and reliefs that are designed to reduce their overall tax liability. One significant relief is the exemption from UK tax on foreign income and gains as long as these are not brought into the UK.
Furthermore, Business Investment Relief (BIR) offers non-doms an opportunity to bring foreign income or gains into the UK specifically to invest in qualifying UK businesses without triggering a UK tax charge. The investment must be made within 45 days of the remittance, and the funds should be used to acquire shares or provide loans to eligible businesses.

For instance, a non-dom who invests £100,000 of foreign income in a UK start-up under the BIR scheme would not be taxed on this investment in the UK. This provision allows non-doms to support UK businesses while maintaining favourable tax conditions.

These reliefs and exemptions provide non-doms with substantial opportunities to manage their tax affairs effectively, ensuring that they can make strategic financial decisions while minimising their UK tax exposure.

 

Section F: Filing and Compliance

 

In addition to paying UK taxation, expats and non-doms may also be subject to UK tax reporting and declaration duties. This involves understanding filing and compliance requirements, as well as relevant deadlines and documentation to be filed to avoid potential penalties for non-compliance.

 

1. Deadlines

 

Meeting deadlines for filing tax returns and paying taxes is crucial to avoid late filing penalties and interest charges. Key deadlines for expats and non-doms include:

 

a. Self-Assessment Tax Return – Online Filing: 31 January following the end of the tax year (e.g., for the tax year ending 5 April 2024, the deadline is 31 January 2025

b. Self-Assessment Tax Return – Paper Filing: 31 October following the end of the tax year.

c. Balancing Payment: 31 January following the end of the tax year.

d. First Payment on Account: 31 January during the tax year.

e. Second Payment on Account: 31 July following the end of the tax year.

f. Capital Gains Tax Reporting and Payment Deadline: Within 30 days of completing the sale of UK residential property for non-residents.

g. Foreign Income and Gains Remittance: If foreign income and gains are remitted to the UK, they must be declared and any applicable tax paid by 31 January following the tax year in which the remittance occurred.

 

2. Documentation and Records

 

Maintaining accurate and comprehensive records is vital for expats and non-doms to support their tax filings and claims for relief. Key documents to retain include:

 

a. Income Records: Payslips, P60s, and P45s for UK employment, foreign employment income records and payslips, bank statements showing receipt of income.

b. Expense Records: Receipts and invoices for deductible expenses, records of overseas workdays for Overseas Workday Relief.

c. Investment Records: Purchase and sale documents for assets subject to Capital Gains Tax, foreign investment income and gains records.

d. Tax Returns and Correspondence: Copies of filed tax returns, correspondence with HMRC regarding tax matters, evidence of foreign tax paid for claiming Foreign Tax Credits.

e. Remittance Basis Records: Detailed records of income and gains kept outside the UK, bank statements showing remitted amounts and dates.

 

3. Penalties for Non-Compliance

 

Failing to comply with UK tax obligations can result in various penalties and interest charges.

 

a. Late Filing Penalties: £100 if the tax return is up to 3 months late. £10 per day (up to a maximum of £900) if the return is more than three months late. £300 or 5% of the tax due (whichever is higher) if the return is more than six months late, and an additional £300 or 5% of the tax due if more than 12 months late.

b. Late Payment Penalties: 5% of the tax unpaid 30 days after the payment due date. An additional 5% of the tax unpaid six months after the payment due date, and another 5% if 12 months late. Interest is charged on late payments from the due date until payment is made in full.

c. Inaccurate Returns: Penalties for inaccuracies in tax returns can range from 0% to 100% of the tax understated, depending on the nature of the error (careless, deliberate, or deliberate and concealed).

 

Section G: Common Tax Strategies

 

For expats and non-doms, effective tax planning is essential to minimise tax liabilities and maximise wealth. Several strategies can be employed to achieve tax efficiency, including tax-efficient investments, the use of offshore accounts, and trusts and estate planning.

 

1. Tax-efficient Investment

 

Tax-efficient investments are designed to provide favourable tax treatment, enabling individuals to maximise their returns while minimising tax liabilities. For expats and non-domiciled individuals (non-doms), there are several key strategies to consider.

One popular option is investing in Individual Savings Accounts (ISAs). ISAs allow UK residents to save or invest a certain amount each tax year without incurring income tax or capital gains tax on the returns. Various types of ISAs are available, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs. For example, an expat who invests in a Stocks and Shares ISA benefits from tax-free growth and income, which helps build a tax-efficient investment portfolio.

Another valuable strategy is investing in the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS). These schemes offer significant tax reliefs for those who invest in qualifying early-stage companies. Benefits include income tax relief, deferral of capital gains tax, and exemption from inheritance tax if the investment is held for a specified period. For instance, a non-dom might invest in an EIS-qualifying company and receive 30% income tax relief on the investment amount while deferring capital gains tax on reinvested gains.
Pensions also provide a tax-efficient investment option. Contributions to UK pension schemes are eligible for tax relief, and the investment grows tax-free.

For expats, transferring overseas pension schemes to UK-recognised schemes can yield additional tax benefits. An example of this would be an expat who contributes to a UK pension scheme, taking advantage of tax relief on contributions and the tax-free growth of the pension fund.

 

2. Use of Offshore Accounts

 

Offshore accounts are another tool that can be used to manage income and gains in a tax-efficient manner. While compliance with all relevant tax laws and regulations is crucial, offshore accounts offer several advantages.

One advantage is the ability to defer tax. Income and gains earned in an offshore account can often be deferred until the funds are brought into the UK, allowing for potential tax savings and investment growth without immediate tax liabilities. For example, a non-dom might keep foreign investment income in an offshore account, deferring UK tax until the funds are remitted to the UK.

In addition, some jurisdictions offer more favourable tax regimes, with lower taxes on interest, dividends, and capital gains compared to the UK. An expat might open an offshore account in a jurisdiction with no capital gains tax, allowing their investments to grow tax-free.

Offshore accounts also provide greater privacy and flexibility in managing finances, which can be particularly beneficial for expats and non-doms with complex financial situations. For example, a non-dom might use an offshore account to manage international investments, benefiting from increased privacy and flexibility in handling their finances.

 

3. Trusts and Estate Planning

 

Trusts and estate planning are powerful tools for managing wealth and minimising tax liabilities, especially for expats and non-doms with substantial assets.

Setting up trusts is an effective way to hold and manage assets on behalf of beneficiaries, offering both tax planning benefits and asset protection. Different types of trusts are available, including discretionary trusts, interest in possession trusts, and bare trusts. For instance, a non-dom might establish a discretionary trust to manage UK property, allowing for flexible income distribution and potential savings on inheritance tax.

Effective inheritance tax (IHT) planning is another crucial aspect of estate management. By reducing the tax burden on an estate, more wealth can be passed on to beneficiaries. Strategies include making lifetime gifts, setting up trusts, and utilising IHT reliefs such as Business Relief and Agricultural Relief. For example, an expat might use the annual IHT gift allowance to transfer assets to family members each year, thereby reducing the value of their estate subject to IHT.

Double taxation treaties between the UK and other countries can also play a vital role in estate planning. These treaties help avoid double taxation on income, gains, and inheritance. For example, a non-dom might use the UK-Spain Double Taxation Treaty to minimise tax on a property in Spain, ensuring it is not taxed twice.

 

4. Case Study: Implementing Tax Strategies as a Non-Dom

 

Lucy, a non-dom residing in the UK, has significant assets and income from multiple countries. She employs several tax strategies to manage her liabilities effectively.

Lucy invests in an EIS-qualifying company, benefiting from income tax relief and deferring capital gains tax on reinvested gains. She also keeps her foreign investment income in an offshore account, deferring UK tax until the funds are needed in the UK. Additionally, Lucy sets up a discretionary trust to manage her UK property, which allows for flexible income distribution to her beneficiaries and reduces her exposure to inheritance tax.

 

Section H: Summary

 

In summary, taxation for expats and non-domiciled individuals is a complex area that demands careful application of the relevant regulations based on individual circumstances.

To avoid non-compliance, it is essential to seek professional advice to ensure the correct taxes are paid on time and that all necessary records and evidence are maintained to address any potential investigations or queries.

With the planned abolition of non-dom status in April 2025, it is particularly important for non-doms to seek advice on how to navigate this transition effectively and optimise their tax position. Proper planning and professional guidance will be key to managing these changes smoothly and ensuring compliance with the evolving tax landscape

 

Section J: FAQs

 

What is the difference between an expat and a non-dom?
An expat is someone who lives outside their native country, either temporarily or permanently. A non-domiciled individual (non-dom), on the other hand, is someone who resides in the UK but considers their permanent home, or “domicile,” to be outside the UK. Non-doms have historically enjoyed certain tax benefits, particularly regarding foreign income and gains.

 

How is my tax residency status determined?
Your tax residency status in the UK is determined using the Statutory Residence Test (SRT), which considers factors such as the number of days spent in the UK, your ties to the UK (such as family, accommodation, or work), and your pattern of residence over several years. This status is crucial in determining your tax obligations in the UK.

 

What is the remittance basis of taxation, and how does it work for non-doms?
The remittance basis of taxation allows non-doms to pay UK tax only on their UK income and gains, as well as any foreign income and gains that are brought into the UK. Non-doms who choose this basis typically pay an annual remittance basis charge, depending on the length of their UK residency, to benefit from this tax treatment.

 

How will the abolition of non-dom status in April 2025 affect me?
The abolition of non-dom status, scheduled for April 2025, will replace the current tax regime with a new residence-based system. Non-doms should seek professional advice to ensure they understand how these changes will impact their tax situation and to optimise their financial planning during the transition.

 

What records and evidence should I keep as an expat or non-dom?
It is crucial to maintain detailed records of your income, assets, and any tax payments made, both in the UK and abroad. These records should include receipts, bank statements, tax returns, and any correspondence with HMRC. Keeping thorough documentation will help you manage your tax obligations and provide evidence if your tax affairs are ever questioned.

 

What are the penalties for non-compliance with UK tax laws?
Failing to comply with UK tax laws can result in significant penalties, including fines, interest on unpaid taxes, and potential legal action. Non-compliance could arise from underreporting income, missing tax deadlines, or failing to keep adequate records. Professional advice is strongly recommended to avoid these risks.

 

How can double taxation be avoided?
Double taxation, where the same income is taxed in both the UK and another country, can be avoided through Double Taxation Agreements (DTAs) that the UK has with many other countries. These agreements ensure that you do not pay tax twice on the same income. If you are eligible, you can claim relief on your UK tax return to offset the tax paid abroad.

 

What are the implications for inheritance tax (IHT) as a non-dom?
Currently, non-doms are only liable for IHT on their UK assets, while foreign assets remain outside the scope of UK IHT. However, with the changes due in 2025, non-doms may face new rules that could affect their IHT liability. It is advisable to review your estate planning strategies in light of these upcoming changes.

 

What are the benefits of using offshore accounts for expats and non-doms?
Offshore accounts can offer tax deferral, greater privacy, and flexibility in managing income and gains. However, they must be used in compliance with UK tax laws. Expats and non-doms should consult with a tax advisor to ensure that the use of offshore accounts is both legal and beneficial for their specific circumstances.

 

When should I seek professional tax advice?
Given the complexity of tax rules for expats and non-doms, it is advisable to seek professional tax advice regularly, particularly when there are changes in your residency status, income sources, or when significant legislative changes, such as the abolition of non-dom status, are anticipated. Professional advice can help you navigate the tax system, minimise liabilities, and ensure compliance.

 

Section K: Glossary

 

Term	Definition
Expat	An individual who lives outside their native country, either temporarily or permanently.
Non-Dom (Non-Domiciled)	A person who resides in the UK but considers their permanent home, or domicile, to be outside the UK, potentially benefiting from special tax treatment.
Statutory Residence Test (SRT)	A test used to determine an individual’s tax residency status in the UK, based on factors such as days spent in the UK and ties to the country.
Remittance Basis	A tax treatment allowing non-doms to pay UK tax only on income and gains remitted (brought into) the UK, rather than on all worldwide income and gains.
Arising Basis	A tax method where individuals are taxed on their worldwide income and gains as they arise, typically applicable to UK residents.
Overseas Workday Relief (OWR)	A relief available to UK residents who are non-domiciled, allowing them to exclude from UK taxation the portion of their earnings related to duties performed abroad.
Double Taxation Agreement (DTA)	Agreements between the UK and other countries to prevent individuals from being taxed twice on the same income or gains in different jurisdictions.
Capital Gains Tax (CGT)	A tax on the profit made from selling or disposing of assets such as property, shares, or investments.
Inheritance Tax (IHT)	A tax on the estate (property, money, and possessions) of someone who has died, applicable to UK-domiciled individuals or UK assets.
Individual Savings Account (ISA)	A tax-efficient savings or investment account allowing UK residents to earn income and gains tax-free up to a specified limit each tax year.
Enterprise Investment Scheme (EIS)	A scheme offering tax reliefs to individuals who invest in qualifying early-stage companies, providing benefits such as income tax relief and capital gains tax deferral.
Seed Enterprise Investment Scheme (SEIS)	A scheme similar to EIS, aimed at encouraging investment in smaller, early-stage companies, with significant tax reliefs for investors.
Offshore Account	A bank account held in a foreign country that offers potential tax benefits, such as deferring tax on income and gains until the funds are brought into the UK.
Business Investment Relief (BIR)	A relief allowing non-doms to bring foreign income or gains into the UK to invest in qualifying UK businesses without triggering a UK tax charge.
Trust	A legal arrangement where one party holds and manages assets on behalf of another, often used for tax planning and protecting wealth for future generations.
Deemed Domiciled	A status where a non-dom becomes subject to UK tax on their worldwide assets and income due to long-term residence in the UK, typically after 15 out of 20 tax years.
Temporary Repatriation Facility (TRF)	A temporary facility allowing individuals previously taxed on the remittance basis to repatriate foreign income and gains to the UK at a reduced tax rate for a limited period.

 

Section L: Additional Resources

 

HM Revenue & Customs (HMRC) – Guidance on Non-Domiciled Individuals
https://www.gov.uk/tax-foreign-income/non-domiciled-residents
The official HMRC website provides detailed information on the tax rules for non-domiciled individuals, including guidance on the remittance basis of taxation and changes to the non-dom regime.

 

HMRC – Statutory Residence Test (SRT) Guidance
https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt
HMRC offers a clear explanation of the Statutory Residence Test, which determines your tax residency status in the UK. This resource is essential for understanding how your residency impacts your tax obligations.

 

HMRC – Double Taxation Relief
https://www.gov.uk/government/publications/relief-from-double-taxation-dtindividual
This page provides guidance on how to avoid double taxation by claiming relief under the UK’s Double Taxation Agreements with other countries. It is particularly useful for expats who are taxed in both the UK and another jurisdiction.

 

The Chartered Institute of Taxation (CIOT) – Non-Domiciled Individuals and Taxation
https://www.tax.org.uk/
The CIOT offers authoritative resources and articles on tax issues affecting non-domiciled individuals, including updates on legislative changes and practical advice for managing tax liabilities.

 

The Institute of Chartered Accountants in England and Wales (ICAEW) – Taxation for Expats
https://www.icaew.com/technical/tax
ICAEW provides resources and guidance on tax matters for expats, including information on tax-efficient investments, use of offshore accounts, and inheritance tax planning.

 

British Government – Overseas Workday Relief (OWR) Guidance
https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm10400
This resource explains the eligibility criteria and application process for Overseas Workday Relief, helping expats understand how to benefit from this relief on their earnings from duties performed abroad.

 

Association of Taxation Technicians (ATT) – Resources for Non-Doms and Expats
https://www.att.org.uk/
The ATT provides practical guides and updates on tax issues relevant to non-domiciled individuals and expats, making it a valuable resource for understanding complex tax rules.