Domicile Status and Taxation
How an individual is taxed in the UK on their income and gains depends on their domicile and tax residence status.
If an individual is UK domiciled and UK resident – their UK income and foreign income are taxed on an arising basis.
If an individual is non-UK domiciled but UK resident – their UK income is taxed on an arising basis. Foreign income is also taxed on an arising basis unless they make a remittance basis claim. Under this claim they are taxed on overseas income only to the extent they bring that money into the UK hence the term "remittance basis".
Domicile is a concept rooted in common law, and every individual has one domicile and only one. In this article we examine different types of domicile status and changes in the treatment following recent changes in the domicile rules.
Three Main Types of Domiciles
Domicile of Origin: An individual acquires their domicile of origin at birth, usually from their father (or from their mother if the parents were not married). This may not necessarily be the country in which they were born.
Domicile of Choice: At age 16, an individual can acquire a new domicile by relocating and establishing a permanent home outside the UK, or if they are already abroad, by intending to remain there permanently.
Domicile of Dependence: Before turning 16, an individual’s domicile follows that of the person on whom they are legally dependent (typically a parent). If that person changes domicile, the child also acquires the new domicile, which displaces their domicile of origin.
Case law has established that to abandon a domicile, an individual must sever all ties with their original country and establish a permanent residence in a new one. Those who maintain family, business, property, or social connections with their previous country are unlikely to succeed in arguing they have changed domicile. If there’s uncertainty about an individual's domicile due to them travelling a lot and owning multiple properties in different countries, the domicile of origin will likely prevail.
Deemed Domicile
Two specific groups of individuals may be non-UK domiciled under general law but are deemed domiciled in the UK for tax purposes. These individuals pay UK tax on the same basis as those who are domiciled in the UK under general law.
Formerly Domiciled Residents (FDRs): An FDR is a non-UK domiciled individual born in the UK with a UK domicile of origin who becomes UK-resident in a given tax year. In essence anyone born in the UK with a UK domicile of origin is classified as an FDR if they return to live in the UK regardless of how long they’ve lived abroad or their remaining connections to the UK.
Long-Term Residents: Non-domiciled individuals who have been UK residents for at least 15 of the previous 20 years are deemed domiciled in the UK for tax purposes. This 15-year requirement doesn’t have to be consecutive; separate periods of residence can be counted toward it.
Update: Changes from April 2025
From April 2025, non-domicile status will be abolished and replaced by a new residence-based system. Under this regime, the remittance basis option will no longer be available.
The new system will be available for up to four years starting from 6 April 2025. From that date, new UK arrivals won’t be subject to tax on foreign income and gains, allowing them to bring these funds into the UK tax-free. Those opting into this regime will lose entitlement to the personal allowance and annual exempt amount as was the pre-existing case for remittance basis taxpayers.
Individuals who previously benefited from the remittance basis will be subject to the Temporary Repatriation Facility (TRF). With the TRF former remittance basis users can elect to transfer offshore untaxed income and gains to the UK at a reduced tax rate: 12% from April 2025 to April 2027, and 15% for the tax year ending 5 April 2028.
Speak to an Expert
Determining residence status is complex and requires careful consideration and planning. If you’re uncertain about your residence status or how it may affect you, or wish to know more about this important area of UK taxation, please contact us for an initial no-obligation consultation.
Authored by: London Team
