‘Non-dom’ is now a term of abuse rather than a factual statement

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The UK tax system has historically always had a concept of ‘non-domicile status’. The supporters of the concept advocate that it encourages overseas investors to be involved in UK business, and enables them to reside temporarily in the UK without pulling all of their overseas income into the arms of UK taxation.

Very often these business investors come from low/no tax jurisdictions. Without the ‘non-dom’ concept, being resident in the UK would have a potentially enormous tax cost for them, sufficient to be a deterrent. And let’s not idealise the fact that big businesses need big investments.

The ‘non-dom’ status allows all overseas income of the ‘non-dom’ person to escape UK tax, provided that the overseas income does not get transferred over or spent in the UK in any way. There are masses of anti-avoidance rules as to what constitutes transferring the income over, and masses of anti-avoidance rules to catch attempts to trick the concept. Due to the extent of anti-avoidance the rules are well-written to only exempt legitimate cases of overseas income remaining overseas.

What is more subjective is the length of time that someone can be a ‘non-dom’ for (currently 15 years), and in an increasingly globalised world, at what point does someone’s domicile change? In the recent high-profile example, there is the implied expectation that the person would voluntarily pay UK tax on overseas income due to their public and political role. Perhaps the tax system has not adjusted for these aspects yet. With increasing attention and political outrage addressed at this matter we may see some changes in the future.

Note: Your domicile starts as being the country where your father was born (or that of your mother if you were illegitimate, or if your father was dead by the time you were born). This is your domicile of origin. You domicile remains as such, unless you replace it with a ‘domicile of choice’. Changing your domicile is not easy – you must demonstrate that you actually reside in a particular country and that you intend to stay indefinitely, with relevant factors being where you will be buried, where are your family, friends, businesses, social activities, properties etc. Switching domicile is not an off the cuff choice that fluctuates year by year. It is a serious declaration to alter your domicile of choice.

Domicile is often confused with ‘residency’. Residency is something that can change year by year and is based on simple facts of where you are physically present each tax year. The media has muddied these concepts in passing judgement on recent high profile ‘non-dom’ status taxpayers.