The View from No 50





September 2006

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925







Have you ever wondered why wealthy people like Madonna, Mohammed Al Fayed and the Arsenal back four (Ashley Cole excepted – still an Arsenal player at the time of writing) choose to live in England?  One reason is the very favourable income tax regime they and all other non UK domiciled taxpayers enjoy here.


If you are resident in the UK, as the above named individuals probably are, but you are domiciled outside the UK, you are only chargeable to income tax on income arising in the UK and on foreign income remitted to the UK.  That means if you can afford to live on your UK income and leave your foreign income abroad you don’t have to pay UK income tax on your foreign income.


The government has made noises in recent years about reforming the basis on which non domiciled individuals are charged to income tax.  But it has never reached a decision about what alternative system to impose.  There is, of course, a strong case for leaving things as they are.  After all the presence of these high profile people in the UK is a good thing for the UK economy.


Could you benefit from non domicile status?


If you were born in the UK of UK domiciled parents the answer is no.  But in other circumstances the answer could be yes and that could be your passport to legitimate avoidance of UK income tax.


What exactly determines your domicile?


At birth you acquire a domicile of origin.  Normally, your domicile of origin is the domicile of your father.  A posthumous child or an illegitimate child receives the domicile of its mother.


So if you are born in the UK of US domiciled parents, you are domiciled in the US.


A domicile of origin is difficult to shed.  Your domicile of origin stays with you until you acquire a domicile of choice in another country.


You acquire a domicile of choice by forming the intention to make a country other than your country of origin your permanent home.


The onus of proving that domicile has changed from domicile of origin to domicile of choice falls on the person who alleges the change has taken place.


There are probably thousands of people in the UK who are not domiciled here but who needlessly pay UK income tax on their foreign income.


A recent case highlighted how difficult it is to shed your domicile of origin.  This case was not a tax case but its outcome depended on the domicile of the subject.


Mr Nathanael died unexpectedly in his early sixties.  He had been born in Northern Cyprus, and had left the island to come to London whilst in his late teens.  He returned to Cyprus in 1972 but left the island again in the wake of the Turkish invasion.  He lived in London for the next 28 years until his death.


While living in London, Mr Nathanael built up a very substantial hotel business and acquired a British passport.  However, he also retained connections with Cyprus.  He carried his Cypriot identity card, spoke Greek with acquaintances and watched Cypriot television.  Mr Nathanael bought two flats in Larnaca, he kept a Cypriot bank account and sent his daughter to be educated in Cyprus.  In the words of the Court of Appeal, Mr Nathanael’s lifestyle was typical of many Greek Cypriots living in London.


Ms Renata Cyganik, the fiancée of Mr Nathanael, claimed under the Inheritance (Provision for Family and Dependants) Act 1975.  That Act gives the Court limited power to vary the terms of an individual’s will to allow provision for the deceased’s dependants.


It was not in doubt that Mr Nathanael had a domicile of origin in Cyprus.  What Ms Cyganik had to prove was that by the date of his death Mr Nathanael was domiciled in England i.e. he had formed the intention to live permanently in England.


The Court considered all the facts that linked Mr Nathanael to Cyprus and to England.  It concluded that Ms Cyganik had not done enough to show that Mr Nathanael intended to live permanently or indefinitely in England.  Domicile of origin prevailed.  Mr Nathanael was not domiciled in England when he died.


The case shows the adhesive and enduring character of a domicile of origin.


So could you be domiciled outside the UK?  If so, you could legitimately save tax by shifting your savings offshore.  Careful management of remittances to the UK could substantially reduce your UK liabilities.


Our Advice – If, having read this piece, you consider you might not be domiciled in the UK you should review the disclosures you have made on your recent tax returns.  If you have foreign source income which you have not remitted to the UK you might have overstated your taxable income.  You should also consider moving some of your UK savings offshore in order to avoid UK income tax in future.





In his review of H M Revenue and Customs Online Services, published in March 2006, Lord Carter of Coles recommended, amongst other things, that the deadline for filing tax returns be shortened from 31 January to 30 November with effect from 2008.


We in the tax profession are all for efficiency and modern working practices but we foresaw tremendous problems with this proposal.


The good news is that Lord Carter has listened to our representations and has changed his mind.  The filing date will remain 31 January.


What a refreshing change to find someone in the ‘establishment’ who is willing to listen and brave enough to change his mind.





The amount of VAT you can reclaim on your business mileage allowances changed for business journeys taking place on or after 1 July 2006.


This change affects you if


your business is registered for VAT and


the business pays its employees a mileage rate for their business mileage or


you charge the business a mileage rate for your own business mileage.


Recognising that the cost of fuel has increased, HMRC has increased the advisory fuel rates.  The advisory fuel rate is that part of the mileage allowance which your business pays to you and / or its employees and which the business can treat as the cost of the fuel.  For example, suppose you run a petrol fuelled car with an engine capacity of 1800cc and you charge your business 40p per mile for business journeys.  According to the new tables, the fuel element of the 40p is now 13p.  Before 1 July the fuel element was 12p. 


Why is this important?  It is important because your business can reclaim VAT on the fuel element.  The 13p breaks down as to 11.06p net and 1.94p VAT.


So when entering up your accounting records and preparing your VAT return the breakdown of the mileage allowance is


Gross                                     40.00p

VAT                                          1.94p

Net                                        38.06p


Our Advice – Make sure you use the new advisory fuel rates for journeys taking place from 1 July 2006.  For a full table of rates visit the website





A football agent called Thomas Strange was shopping for a tombstone.  After he had made his selection the stonecutter asked him what inscription he would like on it.


“Here lies Thomas Strange, an honest man and a football agent,” he responded.


“Sorry, but I can’t do that,” replied the stonecutter.  “It’s against the law to bury two people in the same grave, and the authorities would be confused.  However, I could put ‘Here lies an honest football agent.’”


“But that won’t let people know who it is” protested the agent.


“Sure they will,” replied the stonecutter.  “Everyone who reads it will think, ‘That’s Strange!’”


Copyright:  K P Bonney & Co LLP 2006.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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