Everyone is born with a domicile. At birth, the law determines a person’s domicile based on their father’s domicile. The law only considers the mother’s domicile if the child is born outside of marriage.
UK residents who have their permanent home outside the UK qualify as non-domiciled individuals. In many cases, they do not pay UK tax on foreign income or capital gains. The government introduced this exemption in 1799 when it first implemented income tax. Lawmakers originally designed the rule to protect colonial investments by taxing only the money brought into the UK.
A UK resident qualifies as non-domiciled if their domicile is legally considered to be abroad. To claim this status, individuals must usually self-report by checking the relevant box on their tax return to HM Revenue & Customs. They can choose not to claim non-dom status in any given year. If they do not claim it, they must pay UK tax on their worldwide wealth.
A UK resident becomes non-domiciled if the law recognises their permanent home as being abroad. To claim this status, they must usually self-report to HM Revenue & Customs by ticking a box on their tax return. They can choose not to claim non-dom status in any given year. When they do so, the UK government taxes them on their full income and gains.
However, the non-dom legislation presents some misleading aspects. Both foreign nationals and British citizens can use—or misuse—the rules to reduce or avoid paying UK tax. Although they may pay tax in the countries where they earn income, living in the UK enables them to structure their finances in ways that minimise their UK tax obligations.
As a result, many of the wealthiest families in the UK contribute less through direct taxation. Some argue that the system still benefits the UK economy. This is because they indirectly support employment by hiring staff, advisers, and service providers who do pay UK income tax. Additionally, non-doms often pay VAT on luxury goods and services purchased within the country.
Want a visual explanation of how non-dom status can affect your UK pension? Watch our CEO and IFA, Dominic James Murray break it down on YouTube:
Check out our channel for more videos on UK pension transfers, expat financial planning, and tax-saving strategies that actually work.
UK Domicile vs. UK Residents
In general, your domicile is the permanent location where you live, whereas your country of domicile is the permanent country where you live. In essence, domicile is a legal construct that determines where you vote for the government, file lawsuits, pay taxes, claim benefits, and owe the government.
If you live in the UK, HMRC usually taxes you on an arising basis. This means they tax all of your worldwide income and gains, regardless of origin. As a result, even if another country has already taxed your foreign income and gains, the UK will still apply its own tax. If the UK and your country of residence have a double tax treaty, you must still declare all foreign income and gains on your UK tax return.
A residence is a home you intend to live in for a limited time, whereas a domicile is a home you intend to live in indefinitely. Your residence can be anywhere you own property or live for a set period of time. However, your domicile can only be the one location where you intend to make your permanent home and stay indefinitely. As a result, you can have multiple residences, but only one domicile in one planned location.
Non-Dom Status Legislation Reform
In 2015, the system was reformed and became more complicated. Non-dominance is now limited to 15 years. The reforms significantly reduced the number of people claiming non-domestic status. Only the very wealthy do so anymore. Many people leave the UK after 15 years for five years, then return and claim another 15 years of non-domicile status.
To maintain non-dom status, someone must have lived in the UK for seven of the previous nine tax years. They also must pay a fee of £30,000. The fee is £60,000 after 12 of the previous 14 tax years. And after 15 years in the UK, a person becomes automatically domiciled.
A Case Study
One of our clients in Dubai recently asked us if he could obtain non-dom status so that he could transfer his UK-regulated pension scheme into an offshore bond as instructed by his financial adviser. We are convinced that this was completely incorrect. Leaving the regulated UK pension scheme, which is protected by the FCA and guaranteed by the TPO Ombudsman, and investing in an unregulated offshore bond would result in pension scams.
This happens because moving your pension from a UK-regulated scheme—protected by strong consumer safeguards, into an offshore bond exposes your money to greater risk. Offshore bonds typically offer weaker protection, charge high commissions, and involve risky investments. In the worst-case scenario, you could lose your entire pension.
The other reason is that obtaining non-dom status is extremely difficult and complicated. It is not as simple as declaring that you were born outside of the United Kingdom and obtaining non-dom status. In reality, 70.000 people apply for non-dom status in the UK, including the wealthiest, who have lawyers and accountants on their side, and not all of them are successful.
Actually, a very interesting statistic from the financial times is that roughly 2000 people have managed to maintain their non-dom status for a period of seven years or more. This is two thousand people out of the entire population of the United Kingdom.
If you believe you can secure non-dom status to avoid paying tax on your UK pension, or invest in offshore bonds while retiring in the UK to escape income tax, you misunderstand how the system works. We view this approach as wishful thinking.
Our Advice
A complicated set of requirements must be satisfied in order to apply for non-dom status. Even if you are granted the status, the cost is high. We advise you to be even more cautious with the advice of any independent financial adviser who suggests that you apply for non-domicile status in order to transfer your UK pension scheme to an offshore bond.
The best course of action is to consult both your tax adviser and an independent financial adviser. Simply put, if something seems too good to be true, it probably is. Do not follow the trend.
Cameron James – Your Trustworthy Pension Transfer Specialist
Cameron James Expat Financial Planning is the preferred independent financial adviser for final salary pension and SIPP transfers. With over ten years of experience transferring pensions, Cameron James is now servicing clients in 26 countries.
We have the qualifications and technical knowledge required to help you transfer to an international SIPP as an expat and a US resident. Our mission is to bring regulated and transparent advice to our clients. As such, our clients know how much their advice will cost in advance, with no hidden fees.
Cameron James Expat Financial Planning actively manages client finances through a sophisticated cash flow system. Our senior management team brings over a decade of experience in supporting expats and remains committed to meeting their financial needs for decades to come.
Transferring a Final Salary Pension or Defined Contribution Pension into a SIPP pension scheme for expats is not a simple decision. Before deciding, many details and procedures must be thoroughly understood. Without this knowledge, the benefit will turn into a potential loss.
It is essential to seek competent advice from a qualified financial adviser to verify that your profile matches the suitable options and to ensure that your choice meets the UK and US regulations. Meet one of our dedicated advisers to get a full understanding of SIPPs.