British Passport and UK Tax


Today, we talk about the implications of the UK tax on a British passport holder. The author of this post is both qualified in UK international taxation and UK immigration law. This is a unique combination.

Working in the high net worth client industry for the last ten years, we were often asked how obtaining a British citizenship would impact on personal taxation. Here are our answers.

Unlike the USA, which is another major English speaking country, in the UK, British passport and UK personal tax are mutually exclusive concepts. UK tax system is not based on British citizenship or British passport.

Perhaps, the UK is the only country in the world that basis its personal taxation on the concept of domicile. The concept of domicile dates back to the Roman law and it sought to decide how the personal law should apply to the person concerned who could be a citizen, dual citizen or not a citizen.

Historically, despite, the rules on nationality people would carry their rules of origin with them. The concept of domicile sought to point towards individual’s permanent home.

In the UK, three types of domicile are recognised, which are the domicile of origin, domicile of dependence and domicile of choice.

Normally, a person who was born in the UK, may have British citizenship, but not necessarily a British origin (which means the father had no British domicile) and as long as the person intended to return back to their country of origin (the place of their parents and ancestors moved from and regarded as their own permanent home) – this allowed the non-doms in the UK to escape UK inheritance tax in perpetuity. This obviously, changed in 2008 with the so-called non-dom tax legislation introduced in the UK.

Normally, the UK income tax and capital gains tax would be applied based on the person’s residence. If the foreign person resides in the UK, they pay UK income and capital gains tax.

UK inheritance tax is applied on the long-term residence in the UK. Just the previous tax year a long-term resident person was deemed to be domiciled in the UK for tax purposes if they spent 17 out of 20 tax years in the UK. From the beginning of this tax year, which is the 6th April 2017, we are looking at the individuals who spent 15 tax years out of 20 in the UK.

However, with the upcoming national election in June 2017 we saw some legislative initiatives to curb the status of the non-doms in the UK abandoned. This, perhaps, is a positive change that may be attributed directly to Brexit.

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