Naturalisation and domicile

[Marco 72]

Does naturalisation as a British citizen (for someone who is not married to a BC and who answers "United Kingdom" to question 2.3) imply that the person becomes UK domiciled for tax purposes?

[Christophe]

Does naturalisation as a British citizen (for someone who is not married to a BC and who answers "United Kingdom" to question 2.3) imply that the person becomes UK domiciled for tax purposes?

Not absolutely necessarily, but I think that you would have a hard time convincing the tax people otherwise if the naturalisation was on the basis of residence in the UK (as almost all naturalisations are). Whether it would make a difference (in the future, not at the time) if the answer to question 2.3 were different (i.e. not the UK), I cannot say, but in the case of someone not married to a British citizen, such an answer is acceptable only in very limited circumstances.

[Marco 72]

Not absolutely necessarily, but I think that you would have a hard time convincing the tax people otherwise if the naturalisation was on the basis of residence in the UK (as almost all naturalisations are). Whether it would make a difference (in the future, not at the time) if the answer to question 2.3 were different (i.e. not the UK), I cannot say, but in the case of someone not married to a British citizen, such an answer is acceptable only in very limited circumstances.

I asked because I think it is possible to consider the UK one's "principal home" but not a permanent home, i.e. to have the intention to retire abroad in 20 years' time, say.

[Christophe]

I asked because I think it is possible to consider the UK one's "principal home" but not a permanent home, i.e. to have the intention to retire abroad in 20 years' time, say.

Yes, it can all get quite complicated. That might be possible, but I think you'd have to do some good talking to convince the Inland Revenue, especially while you were still actually living in the UK. But others might know more, as would a tax lawyer, of course.

[SYH]

Not absolutely necessarily, but I think that you would have a hard time convincing the tax people otherwise if the naturalisation was on the basis of residence in the UK (as almost all naturalisations are). Whether it would make a difference (in the future, not at the time) if the answer to question 2.3 were different (i.e. not the UK), I cannot say, but in the case of someone not married to a British citizen, such an answer is acceptable only in very limited circumstances.

I asked because I think it is possible to consider the UK one's "principal home" but not a permanent home, i.e. to have the intention to retire abroad in 20 years' time, say.

Yeah but it has to be a more recent intention.
Check the tax forms you will see the largest range they use regarding domicile, resident, ordinarily resident is 5 years so ... 20 years is not relevant at this time

[davidm]

Does naturalisation as a British citizen (for someone who is not married to a BC and who answers "United Kingdom" to question 2.3) imply that the person becomes UK domiciled for tax purposes?

Short answer- no. Both I and my wife are non-domiciled (Inland Revenue has confirmed this status in writing) despite being naturalised as we have strong ties to another country (was born there, have family in the home country while no family ties to the UK, own property outside the UK etc.).
As far as Inland Revenue is concerned, it is ties to the UK that matters, not nationality. And the ties to the UK has to be strong.

[Marco 72]

I just found this old thread and wanted to add that apparently naturalisation does not affect domicile, regardless of how you answer question 2.3 on the naturalisation form. In my case HMRC has ruled that I am indeed non UK domiciled for tax purposes despite my naturalisation.

[JAJ]

I just found this old thread and wanted to add that apparently naturalisation does not affect domicile, regardless of how you answer question 2.3 on the naturalisation form. In my case HMRC has ruled that I am indeed non UK domiciled for tax purposes despite my naturalisation.

It is of course absolutely unacceptable that anyone should be able to have full access to United Kingdom health and social services without paying taxes on the same basis as any other Briton.

Whatever concessions may be made for short term temporary residents, it is clear that "non-domiciled" status is likely to be removed in the near future and it cannot come a day too soon.

In Australia or the United States, the idea that permanent residents and citizens of foreign origin should be able to pay less tax than indigenous citizens could never be accepted.

[Xzibit1]

According to Annex F - " Future Intentions Requirment", if an applicant is domiciled abroad for tax purposes, then their naturalisation application should normally be refused.

Extract below:Information may also come to our attention that the Inland Revenue regards an
applicant as domiciled abroad for tax purposes. In such cases, we should request the
applicant's permission to contact the Inland Revenue. We should then ask the Inland
Revenue to provide us with a copy of the applicant's completed "Domicile Enquiry"
questionnaire, which may throw some light on future residence intentions. If
permission is not forthcoming the application should be refused.

[Marco 72]

It is of course absolutely unacceptable that anyone should be able to have full access to United Kingdom health and social services without paying taxes on the same basis as any other Briton.

Neither is it fair that so many native Britons have full access to health and social services while paying no taxes whatsoever, making little or no effort to find work and living on benefits funded by hard working taxpayers.

Having said that, I agree the domicile rules are unfair and they should be changed by making everyone eligible for the remittance basis, not just those who happen to be born in a foreign country. Even better, the government should make all foreign income tax-free, as is the case in Hong Kong and Singapore. If a government does not contribute in any way to the formation of wealth, on what basis should it demand a cut?

[Christophe]

Neither is it fair that so many native Britons have full access to health and social services while paying no taxes whatsoever, making little or no effort to find work and living on benefits funded by hard working taxpayers.

But that's really a separate issue... as indeed you do suggest, to be fair!

[Marco 72]

According to Annex F - " Future Intentions Requirment", if an applicant is domiciled abroad for tax purposes, then their naturalisation application should normally be refused.

Not quite. It says it should be refused if the applicant refuses to grant permission to contact the Inland Revenue. The text from Annex F continues as follows:

"The replies to the domicile questionnaire should not be given undue weight, and they should not form grounds for refusal if they merely indicate that applicants see their ultimate home as a country other than the UK. (It is not a requirement for naturalisation that applicants intend to make their home permanently in the UK.)"

More importantly, there is a legal precedent from 1999 (matter of F. (deceased) v IRC) which established that naturalisation cannot be considered evidence of taking up UK domicile. F. was an Iranian national who had naturalised as a CUKC in 1982. The court ruled that he should be considered domiciled abroad for tax purposes since, among other things, witnesses testified that he had expressed the intention of moving back to Iran. This is all the more remarkable since F. was dead and had not in fact moved to Iran before he died.

[Frontier Mole]

Check out this link - it gives you an idea of what you might be letting yourself in for if you claim to be non UK domiciled.

http://www.mwe.com/index.cfm/fuseaction ... a89cc0.cfm

[John]

Whatever concessions may be made for short term temporary residents, it is clear that "non-domiciled" status is likely to be removed in the near future and it cannot come a day too soon.

Lots about this in the Finance Act 2008. Non-domicile status is not abolished but potentially their tax bill might be increased quite significantly.

But also protection for non-domiciles who only have a small amount of non-UK income. So it will still be the case that my wife, who is non-domiciled, will not be subject to UK tax on the small amount of interest credited each year to her Thai bank deposit account.

But the new rules will hit those earning megabucks in the city, and I think, about time too!

[JAJ]

Lots about this in the Finance Act 2008. Non-domicile status is not abolished but potentially their tax bill might be increased quite significantly.

But also protection for non-domiciles who only have a small amount of non-UK income. So it will still be the case that my wife, who is non-domiciled, will not be subject to UK tax on the small amount of interest credited each year to her Thai bank deposit account.

But the new rules will hit those earning megabucks in the city, and I think, about time too!

The next step ought to be removing the entire concept of "domicile" from the tax code and replacing it with the not-unreasonable principle that all British citizens and permanent residents (ILR holders) should be taxed on worldwide income. Worldwide income taxation should also be extended to EEA/Swiss citizens living in the United Kingdom.

The perception, valid or otherwise (and in this case, it is valid) that foreigners and some naturalised Britons are given preferential treatment over native born Britons is profoundly unhealthy for the nation.

[republique]

Several of my wealthy friends have jumped ship and have accordingly moved out of the UK to Monacco for example. Accordingly to them, the UK lost out of the income they did declare and pushed them out due to these new rules.

[JAJ]

Several of my wealthy friends have jumped ship and have accordingly moved out of the UK to Monacco for example. Accordingly to them, the UK lost out of the income they did declare and pushed them out due to these new rules.

Frankly, I don't think anyone cares about that. This really is not about money. It is about one rule for everyone.

All that said, those on temporary permits (work permits etc) should only be taxed on U.K. source income. It's when they go for ILR and/or citizenship that they should pay full British taxes.

[republique]

Several of my wealthy friends have jumped ship and have accordingly moved out of the UK to Monacco for example. Accordingly to them, the UK lost out of the income they did declare and pushed them out due to these new rules.

Frankly, I don't think anyone cares about that. This really is not about money. It is about one rule for everyone.

All that said, those on temporary permits (work permits etc) should only be taxed on U.K. source income. It when they go for ILR and/or that they should pay full British taxes.

I can understand the need for fairness but to be fair, if you come from another country you don't get access to benefits right away either. I think you need to leave the tax issues with the tax office and the immigration issues with the HO. There is some areas where intentions overlap but I see nothing wrong with maximizing your income if the rules allow it.

[JAJ]

I can understand the need for fairness but to be fair, if you come from another country you don't get access to benefits right away either.

Which is why I said that there is a case for those on temporary permits to be treated differently.

However those with ILR or British citizenship do have full access to benefits and it is immoral for a differential tax regime to favour those British citizens and permanent residents with foreign links over the indigenous population.

[John]

For those that have skills that they can easily transport from one country to another, the comparative tax rates are something that they might want to take into account. Accordingly the new non-domicile rules will tend to make the UK less attractive.

Top rates of tax are competitive between countries. When the UK, under Haggie Thatcher, reduced the top rate of income tax down to 40%, at first glance it appeared that less money would be going into the UK Treasury. In fact the reverse was true. Even though the rates of tax had been reduced significantly, more money poured into the Government's confers. Why? Because, in effect, international tax planning can mean that there is effectively a choice where income is taxed, and obviously the choice is in the country with the lowest rate of tax. As much as one might not like this idea of international tax planning, the fact is that opportunities exist, and there is no way that any one national Government can stop such planning.

[republique]

I can understand the need for fairness but to be fair, if you come from another country you don't get access to benefits right away either.

Which is why I said that there is a case for those on temporary permits to be treated differently.

Ah so you did!

However those with ILR or British citizenship do have full access to benefits and it is immoral for a differential tax regime to favour those British citizens and permanent residents with foreign links over the indigenous population.

I still think that is a bit strong. While yes once you receive ILR or naturalization, you can get full benefits, you are still at a disadvantage in terms of amassing your wealth compared to others who were in the UK from day one. Not so sure the second you get ILR, you are all of sudden on equal footing.

[JAJ]

For those that have skills that they can easily transport from one country to another, the comparative tax rates are something that they might want to take into account. Accordingly the new non-domicile rules will tend to make the UK less attractive.

It might also make London property more affordable ... I am not convinced that allowing foreign billionaires to buy up British property and live in Britain on an effective tax-free basis enhances the real economic welfare of the British people.

As for others, the reality is that the number of people who can move countries and retain their earning power is actually quite limited. Most of those in professional/managerial occupations cannot do so as easily as you might think, due to reasons such as language, qualification recognition etc.

Top rates of tax are competitive between countries. When the UK, under Haggie Thatcher, reduced the top rate of income tax down to 40%, at first glance it appeared that less money would be going into the UK Treasury. In fact the reverse was true. Even though the rates of tax had been reduced significantly, more money poured into the Government's confers. Why? Because, in effect, international tax planning can mean that there is effectively a choice where income is taxed, and obviously the choice is in the country with the lowest rate of tax. As much as one might not like this idea of international tax planning, the fact is that opportunities exist, and there is no way that any one national Government can stop such planning.

It is reasonable for the United Kingdom to say that if someone wishes to live in the U.K. as a permanent resident or citizen, then they should pay full British taxes. If people then choose to live elsewhere, that is their choice. They will find that most developed countries (such as the United States) go a lot further in terms of taxation than the United Kingdom does.

As for the 1988 tax reform, it's also true that at the time, the tax system was becoming simpler year on year as allowances and "tax breaks" were restricted to being down marginal rates. 1988 was the highlight of this. Unfortunately, after the departure of Chancellor Lawson in 1989 complexity began to creep back into the system and went out of control when the government changed in 1997.

[JAJ]

I still think that is a bit strong. While yes once you receive ILR or naturalization, you can get full benefits, you are still at a disadvantage in terms of amassing your wealth compared to others who were in the UK from day one. Not so sure the second you get ILR, you are all of sudden on equal footing.

We are talking here about those who are already wealthy, or who have high incomes. Those on lower incomes generally have no significant foreign income and hence are not really affected by a move to common British taxation.