Non-dom status: do you qualify?

By John Greenwood 304PM GMT seventeen March 2010

Lord Ashcroft Photo PAUL GROVER

Most people think claiming a unfamiliar dwelling is customarily for the super-rich, but roughly five million people could potentially save taxation by you do so, according to Treasury papers unearthed by The Sunday Telegraph.

The debate around Lord Ashcroft"s taxation affairs has focused on the benefits accessible to the rich by claiming non-domiciled status.

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But total from the Treasury performed by The Sundayshow that as majority as 4.9 million people in the UK could direct to be treated with colour as ""non-doms"", definition even those with medium resources could save taxation on their income, collateral gains and genocide duties.

"The ubiquitous summary is that if you were innate in the UK to a UK father it is really doubtful you are going to be equates to to good from the special diagnosis accessible to non-doms," says Mike Warburton, taxation partner at Grant Thornton. "But if you or your relatives have come to this nation from overseas, you competence be blank out if you are not already claiming non-domiciled standing on your taxation return."

Claiming non-dom standing will be a rubbish of time if you have no resources or skill overseas. But if you prove HM Revenue & Customs that your nation of dwelling is not the UK, there are ways you can cut your taxation bill. The key good of being a non-dom is that it allows you to equivocate profitable income or collateral gains taxation on investments kept abroad as prolonged as you do not move the income or the gains in to the UK. You can additionally equivocate estate taxation on skill hold overseas.

You get the dwelling of your father, or your mom in sure circumstances. So if your father has a unfamiliar domicile, you can get that unfamiliar dwelling from him, even if you were innate in the UK and he is vital in the UK, as prolonged as you and he don"t intend to stay here permanently.

It is additionally probable to lose your UK dwelling if you henceforth move abroad and have your home in an additional country, nonetheless proof this to HM Revenue & Customs is difficult.

The advantages of a non-dom standing can be substantial for those with large amounts of investment income. Up until Apr 2008, all non-doms could equivocate profitable taxation on gain from abroad investments. But since then, you customarily suffer this value for the initial 7 years that you live in the UK.

After that, you can opt to equivocate profitable taxation on your offshore income, but you have to compensate HMRC �30,000 for the privilege. This effectively equates to that for the initial 7 years you are in the UK, claiming non-dom standing is value you do in any case of how majority you are earning offshore. But after that period, it is customarily value you do if you are going to save some-more than �30,000 a year.

Non-doms are additionally authorised to equivocate taxation on abroad investment income if it does not surpass �2,000 a year, that experts contend is expected to cover a large series of people with resources on deposit, since today"s low seductiveness rates. If this relates to you, it could be value opting for an offshore comment supposing it pays a higher rate of seductiveness than you can get onshore. But check that the remuneration intrigue offering by the regulator in the office your offshore provider is formed in is sufficient to cover you in the eventuality the provider goes bust.

Non-dom standing can additionally assistance cut your estate taxation (IHT) bill, since you will customarily be probable for IHT on your UK resources and not those overseas. However, there is a intensity trap for those seeking to equivocate IHT. If you have lived in this nation for any piece of seventeen years in the last 20, you are deemed domiciled for IHT purposes.

"The well-advised take stairs to equivocate this, by ensuring their abroad resources are eliminated in to an offshore certitude prior to they turn deemed domiciled," Mr Warburton says.

If you were innate in the UK, you are expected to begin off with UK dwelling and losing it is difficult. However, it competence be possible, quite where people retire to an additional nation with no goal of returning to the UK. The law surrounding this area is complex, so get veteran advice.

"You need to leave the UK and solve in a sold state overseas, and show you have done a permanent home over there. After 3 years it is probable to lose UK domicile, but it is really tough to do so," says Alex Henderson, a taxation partner at PricewaterhouseCoopers. "Domicile is mostly an collision of birth, so select your relatives wisely."

Q How do I turn non-domiciled in the UK?

A Domicile is, in majority situations, an collision of birth, rather than a choice. You get dwelling from your parents, customarily your father. If your father is not UK-domiciled when you are innate and you don"t intend to stay in the UK permanently, you competence have a unfamiliar domicile, as well dwelling of origin.

Q Can I be a non-dom if I was innate in the UK?

AYes. Being innate here does not automatically meant that you are domiciled here. You competence have been innate here to a non-UK-domiciled father and afterwards changed to an additional country. If you lapse here and are not formulation to stay permanently, you will go on to be domiciled outward the UK.

Q What if I was innate abroad, whilst relatives were operative overseas?

AYou will not validate for non-dom standing if your father remained domiciled in the UK whilst overseas.

Q Is dwelling regularly contingent on my father"s domicile?

ANo. If your relatives divorce when you are a kid and you are brought up by your mom you get her domicile. If your relatives were not tied together at your birth, you additionally take her domicile.

Q Can I lose my dwelling of origin?

AYes, but it is not easy. To do so you contingency leave your stream nation of dwelling and solve in an additional country. You need to yield justification that you intend to live there henceforth or indefinitely. HMRC will take in to comment factors together with intentions, permanent residence, commercial operation interests, amicable and family interests, and tenure of property.

Q What is the disproportion in between ""domicile"" and ""residence""?

A Domicile is where you come from or where you intend to outlay the rest of your life. Residence is an issue of where you physically are at a sold time. You turn automatically proprietor in the UK if you outlay 183 days here. You additionally turn proprietor if you outlay an normal of 90 days a year here. When you are proprietor here you are probable for taxation on UK earnings.

Q What taxation can I avoid?

AIncome taxation and collateral gains taxation on investments and alternative resources hold overseas. You can additionally equivocate estate taxation on skill hold overseas, nonetheless you will be deemed UK-domiciled for IHT purposes if you are proprietor in the UK for any piece of seventeen years in the last 20. This can catch you after fifteen years and dual days in sure circumstances. Putting skill in to certitude prior to this time has over will assistance you equivocate IHT.

Q How do I explain non-domiciled status?

A Tick the box on subject 8 of your self-assessment taxation return. By you do so, you will have some-more pages to fill in. HMRC competence ask for serve evidence.