INTM601980 - Transfer of assets abroad: Non-domiciled individuals: The income charge - the position up to 5 April 2005

For non-UK domicile status to have any effect on the income charge, an individual must show that he would not, by reason of his being so domiciled, have been chargeable to tax in respect of the income if it had in fact been his income (ICTA88/S743(3)).

The only circumstances in which an individual ordinarily resident in the UK would not have been chargeable to tax in respect of the income if received by him, based on domicile status alone, would have been if the income were foreign-source income not received in the UK.

In other words, it is income that, if received by him, would have been charged to tax under Case V of Schedule D on the basis of sums received in the UK, described in ICTA88/S65(5).

Where the condition is met, then the individual is not chargeable (under the income charge) by reference to so much of the income treated as his as satisfies this condition. This can be illustrated by some straightforward examples:

Example 1

An ordinarily resident but non-UK domiciled individual is potentially chargeable to tax under the income charge in respect of income of £1000, comprising £500 UK source and £500 foreign source income, all arising to a person abroad. The foreign source income is not received in the UK.

If the income were in fact the individual’s, the rules in what were Cases IV and V of Schedule D (ICTA88/S65) would, for a non-UK domiciled individual, only charge the foreign income to the extent that sums in respect of it were received in the UK. On the basis that the £500 foreign source income is not received in the UK, that amount is excluded from the transfer of assets income charge and the maximum charge for the year is £500.

Example 2

As above, but sums totalling £800 in respect of the income of the person abroad are received in the UK. In this scenario, the potential charge on the individual is £1000 but a maximum of £200 may potentially be excluded by the non-UK domiciled provision, leaving a minimum charge of £800.

This manual does not provide detailed guidance as to when a sum is received in the UK. However, for the purpose of the income charge under transfer of assets, the same approach will generally be taken as is taken for direct income chargeable under what was Cases IV or V of Schedule D.