Tax planning for non doms working overseas

Anyone who is UK resident and domiciled is subject to UK income tax on their worldwide income. However there is a special rule for non UK domiciliaries. This applies where an employee:

Is UK resident and ordinarily resident

Non UK domiciled

Works for a foreign employer and

Performs all duties outside of the UK Where these are met the overseas salary can then qualify for the remittance basis. This could obviously be of tremendous benefit as it allows the non dom to retain the income abroad to avoid UK tax (subject to the new rules which we'll look at below). At the outset though these rules are very strict, as you would need to work or a foreign employer (which is defined as a non resident employer) and also you would need to perform all of your duties overseas (aside from any 'incidental' UK duties). So if you have an employment with a UK employer or even an employment with an overseas employer that is based in the UK but has international travel this wouldn't qualify. You would need to have the employment principally exercised overseas. This has led to the practice of split contracts, where the employment is effectively divided into two, with the UK duties being subject to one contract of employment, and the overseas duties being subject to another. This then allows the overseas contract to solely cover overseas duties to allow the remittance basis to be claimed. In many cases the key problems would be if the employer was UK resident and also whether you can establish a separate contract for any overseas employment. New Remittance Rules Even if the remittance basis could in principle apply, if you worked for a non-resident employer and carried out your duties overseas, after 6 April 2008 you would still be subject to the new remittance tax rules. This means that on first arriving in the UK you could claim the remittance basis and avoid UK income tax on the overseas employment income. The only drawback in most cases would be the loss of the UK personal allowance and capital gains tax exemption. If you remain here for more than 7 tax years you would then need to consider whether to continue claiming the remittance basis or not. Unless the overseas employment income (together with your other overseas unremitted income) is more than around £81,000 it would not be worthwhile claiming the remittance basis as you would then need to pay an annual £30,000 tax charge. So for most non doms the first seven years honeymoon period gives a good opportunity to use the remittance basis, however after this unless they had substantial overseas income that was retained abroad it would not be worthwhile. Note though that if the non dom could also establish non UK residence status for the period overseas they'd then get an exemption from the £30,000 tax charge. Remittances If you did claim the remittance basis for the first 7 years in the UK any transfer of the funds to a UK bank account would be classed as a remittance. You would ideally need to ensure that the funds were retained abroad or that any funds transferred to the UK were not classed as taxable remittances. There are various ways that this could be achieved including making transfers of exempt property or transferring to unconnected family members.