Non-dom elections, changing rules and divorce jurisdiction for international clients

Many international clients base their decisions as to where to make their permanent residence on tax advice and need to be mindful of the tax rules in operation in the countries in which they have connections.

Under existing rules (which are due to change on 6 April 2025), UK resident non-domiciles who haven’t become deemed-domiciled can choose to be taxed on the remittance basis. This means that whilst they pay tax on their UK income and gains in the same way as other UK residents, they only pay tax on their foreign income and gains (FIG) when these are remitted to the UK.  Last year, the government announced its plans to remove preferential tax treatment based on domicile status for all FIG that arise from 6 April 2025 whether or not remitted. The effect of this is that from that date:

• the prior preferential tax treatment based on domicile status will be replaced by a residence-based regime.
• 100% relief will be available on eligible FIG for new arrivals to the UK in their first four years of tax residence, but only if they have not been UK tax resident in the 10 tax years immediately prior to their arrival (4-year FIG regime).
• all former remittance basis users (non-doms) who are not eligible for the 4-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG like any other taxpayer.

In the context of marital breakdown choice of domicile for tax purposes can have an impact upon whether an individual can secure or oppose jurisdiction for divorce (and consequential financial claims) where a person claims that their domicile or habitual residence is in England. International clients with designs on pursuing or defending divorce proceedings in England need to be aware of the family court's approach to jurisdiction and forum where there are competing jurisdictions. 

These considerations came into focus in the recent case of KV v KV [2024] EWFC 359 where a couple with a very high standard of living (with homes in England, Switzerland, France, the Caribbean and an unidentified country 'E' to name but a few) had, on tax advice, terminated their permanent residence in country E in favour of Switzerland,. They later bought a substantial house with equestrian facilities in England to where the wife and the children moved. The husband spent considerable time in England but kept within the 90 days maximum he was allowed to spend under the (then) non-dom rules. The marriage broke down in 2021 by which time the husband was living largely in Switzerland with his new partner and the wife remained in England with the children where she subsequently applied for a divorce based on her habitual residence. A few months later, the husband issued his divorce proceedings in country E, arguing that the wife was habitually resident in E country and that he was habitually resident in Switzerland.

A number of factors are considered by the family court when deciding where a person is habitually resident to satisfy the jurisdictional requirements for divorce; elections for tax purposes are taken into account; residence must be of habitual and stable character; and a person must have established a permanent or habitual centre of interests. It is not so much a quantitative evaluation of the time spent in each country, but a qualitative evaluation of personal links to a place. Intention and objective connection factors are taken into account. Calendar movements are relevant but, as the judge said in KV v KV, in the case of 'such an international family as this', bare statistics are of limited assistance. Where the children were educated and where the family pets lived rated more highly than the country where the family spent most nights living 'qua family'. Here, in reality, the family had no single place of residence, but the wife did, and on balance her habitual residence was found to be in England. 

But that was not the end of the story, as the court then had to consider whether the English divorce should be stayed in favour of the divorce proceedings in E country and whether England was the appropriate forum for the divorce for this international family. Here, assets were located in numerous countries across the world: family trusts in E country, considerable investments in Germany, properties worth c£50m in England and properties worth c€65m in France. However, there was extensive real property outside E country upon which an English court order dealing with the finances, could bite. And there was concern that an English divorce order and financial court order would likely face recognition and enforcement hurdles in E country. In the light of various steps that the husband had taken post separation to rearrange his finances via transfers into a trust and to his son from his first marriage, it was difficult to see how the wife could make her financial claims against him in E country. England was, on balance, found to be the most appropriate forum and so the case will, after all, proceed here.

The final financial outcome for Mr and Mrs KV is as yet unknown (and may not be decided by the court if non-court dispute resolution options are embraced). But whichever route this couple take, like all international divorcing couples, they will need sound advice, not just about the finances and forum, but also tax advice on how best to structure funds which may need to be brought into the UK as part of any agreed or court-ordered settlement. 

For more advice on the UK non-domicile budget see our page here. 

To find out more information on navigating asset protection across borders, see our FAQ page here.