Are You Non-Domiciled? How To Determine Your Domicile Status
Since the news broke that British Prime Minister Rishi Sunak’s wife is non-domiciled (UK), the topic has been discussed and written about almost nonstop.
But what does ‘non-dom’ status mean for the average person, and how do you determine your domicile status?
What is Domicile Status and Why Does It Matter?
Understanding your domicile status (tax status) when it comes to international taxation is important. Domicile status is often confused with residency, but it really refers to your permanent home. In this context, your permanent home means your true base.
This means that domicile goes beyond living in a specific country. It includes your physical ties to the country and location you live in, your intentions for the future, and your emotional connection to the place where your permanent home is.
So, unlike simple residence, which is often temporary, domicile refers to an ongoing affiliation. If you live abroad, it is crucial to know the difference because it comes with tax implications.
For instance, if you are a UK resident and classified as non-domiciled in your country of residence, you may enjoy foreign income exemptions or capital gains. But your overseas income must be less than £10,000.
Domicile of Origin vs Domicile of Choice
Everyone eventually ‘owns’ a domicile but has two ways of getting there. Your “domicile of origin” is the domicile you acquired at birth. This automatic domicile is typically inherited from your father but could be from your mother. If your parents were married at the time of your birth, it is your father’s domicile. If not, it is your mother’s domicile.
Domicile of choice means establishing a domicile in another country. If you stay in that country for a long time and integrate into the community, you gain a domicile of choice.
However, you must intend to make this country your permanent home for the domicile of choice to apply. Remember, you can only acquire a domicile of choice if you are at the age of legal capacity.
Other types of domiciles include domicile of dependence and deemed domicile. You acquire a domicile of dependence from the relevant parent (typically your father) when you are under 16.
A deemed domicile is established by statute. It does not matter what your domicile is under common law; you are automatically domiciled in the UK for tax if you have been a tax resident for 15 or more tax years (out of the previous 20).
What Influences Non-Dom Status?
Non-dom status hinges on several factors. These include length of residency and family connections. It also includes business and economic interests and whether you want to return to your country of origin at some point.
If you want to maintain a non-dom status, there are more factors to consider. Some countries enforce time limits on how long a person can stay a resident without losing their non-dom status. Speaking to a tax advisor is crucial if limits apply to you.
Also, if you rely heavily on public services, including healthcare, this can easily be interpreted as an intention to make the country you are living in your permanent home.
The Concept of Non-Dom Status Continues to Evolve
Several countries are considering introducing reforms to non-dom statuses, including tightening the eligibility criteria. If you plan to live abroad for a long time, ensure that you stay informed about all changes and developments.
Your domicile status plays a direct role in managing your international tax obligations. Fortunately, understanding your status and using the above pointers ensures your tax affairs are in order.
Sources
https://www.withersworldwide.com/en-gb/insight/read/why-does-domicile-matter-in-the-uk
https://www.gov.uk/tax-foreign-income/non-domiciled-residents
https://globalresidenceindex.com/domicile-vs-residence/
https://www.bbc.com/news/business-32216346
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