5 - Residence & Domicile

Question 1

Difference between residence and domicile

Answer 1

Residency can change in any given year whereas domicile is supposed to be the country you regard as your permanent home.

Question 2

Residency

How is residency determined (high level summary)?

Answer 2

First apply the automatic test to determine if you are definitely NOT a UK resident.

If you don’t meet any of those requirements then apply the automatic test to determine if you definitely ARE a UK resident.

If you don’t meet any of the automatic requirements the sufficient ties test is used, which is more complicated.

Question 3

Residency

How do you determine which days you were in the UK?

How long is your residency status fixed for?

Answer 3

It’s based on whether you were in the UK at midnight on each given day (so a day visit doesn’t count at all).

Generally residency status is determined for the whole of a tax year, however it is possible for a year to end up being split (for example when arriving in or leaving the UK).

Question 4

Residency

What are the tests to see if you are automatically NOT resident.

Answer 4

You are automatically NOT resident if any of the following are true:

• You are in the UK fewer than 16 days in the current tax year;
• Not resident in UK for any of the last 3 tax years AND in the UK for fewer than 46 days in current tax year;
• Left the UK to work full time abroad, in the UK for fewer than 91 days of the tax year AND fewer than 31 days working in the UK in the tax year.

Question 5

Residency

What are the automatically resident tests?

Answer 5

If you aren’t automatically NOT a resident, and meet one of the following, then you are definitely a resident for the tax year:

• In the UK for 183 or more days of the tax year;
• Only home is in the UK;
• Carrying out full time work in the UK.

Question 6

Residency

What are the sufficient ties tests?

[note full details are probably not examinable]

Answer 6

There are 5 indicators of having ties to the UK.

Depending on the number of days you spend in the UK you need to meet a certain number of those 5 indicators in order to be deemed a UK resident.

• Under 16 days: this would be automatic non-UK
• 16-45 days: need 4 ties (automatic non-UK if you weren’t UK resident in last 3 tax years)
• 46-90 days: need 3 ties (4 if not UK res. in last 3 tax years)
• 91-120 days: need 2 ties (3 if not UK res. in last 3 tax years)
• 120+ days: need only 1 tie (2 if not UK res. in last 3 tax years)

Question 7

Residency

What are the five ties forming the sufficient ties test?

Answer 7

• Spouse, civil partner or minor children are resident in the UK;
• Accomodation in the UK made use of during the year;
• Do 40 or more days work in the UK during the tax year;
• Spend >90 days in UK during each of last 2 years;
• Spend more time in the UK than any other single country.

Note that the last tie is not relevant to people arriving in the UK.

Question 8

Residency

What is the deeming rule?

Answer 8

Deeming rules apply where the below conditions are all met:

• Have 3 or more ties to the UK in the tax year;
• Have been in the UK on more than 30 days without being there at midnight (qualifying days);
• Have been resident in one of the last 3 tax years.

Then after the first 30 qualifying days all subsequent days in that tax year are treated as days present in the UK.

Question 9

Residency

What is the significance of split-year treatment?

Who does it apply to?

Answer 9

If you leave the UK half way through the year you’ll have 180 days living in the UK and thus remain resident for that tax year.

Split year treatment allows you to split up the tax year so that you can start counting again from the day you leave the UK, and thus be non-resident the day after you leave (rather than waiting till the next tax year).

This applies if you leave the UK for full-time work, to join your spouse/partner, to live overseas (must have no UK home) or move to live in the UK.

Question 10

Domicile

What is your domicile (high level summary)?

3 types

Answer 10

Your domicile is the country that is your natural home, more permanent than residence. It’s not possible (under UK law) to have dual domicile status.

There are three types of domicile:

• Domicile of Origin;
• Domicile of Choice;
• Deemed domicile.

Question 11

Domicile

What is your domicile of origin?

Answer 11

Until age 16 your domicile follows your parents, which means your fathers domicile (according to England & Wales law), or mother if illegitimate.

Note that domiciles of spouses are independent.

Question 12

Domicile

What is your domicile of choice?

Answer 12

You can acquire a new domicile by moving to a new country with the intention of living there permanently.

You have to prove this is the case (eg prove to UK that you’ve genuinely left, never to come back) using key indicators.

Indicators are living in the new country, expressing an intention to stay there, buying a house there, selling your house in the old country, getting a job or starting a business in the new country, acquiring citizenship in the new country.

Question 13

Domicile

What is deemed domicile?

Answer 13

Deemed domicile rules are applied by the UK to establish that you are subject to UK domicile rules, regardless of your domicile of choice.

If you are UK resident for 15 out of the last 20 years you are deemed a UK domicile.

UK domicile is also deemed to be kept for 3 years after emigrating and acquiring a domicile of choice.

Question 14

What is the effect of res/dom status on IHT?

Answer 14

UK domiciles pay IHT on all gifts in the UK or worldwide.

Non-UK domiciles only pay IHT on transfers within the UK.

Question 15

What is the impact of res/dom status on income tax?

Answer 15

Everybody has to pay UK income tax on any income earned within the UK.

If you are not UK resident you don’t have to pay income tax on any non-UK income (salary, property income etc).

UK residents generally have to pay tax on their worldwide income, however if you are a UK resident but non-domiciled you’re only taxed on income remitted to the UK.

Question 16

Non-resident income tax

What is the special limitation for non-residents UK income tax?

Answer 16

Tax is payable on UK income in the usual way (typically this is investment income for non-UK residents, eg rental income).

However the tax bill is limited to the tax that would be paid if you exclude investment income and also disallow the personal allowance.

Note that in this calculation rental income is not included as part of investment income.

So if you receive UK savings interest and UK rental income, you pay tax on the lower of (rental income with no personal allowance) and (savings + rental income with personal allowance).

Question 17

Domicile

What is remittance?

Exemptions

Answer 17

Remittance relates to UK residents who are not UK domiciled (non-doms).

They are only taxed on worldwide income if it is remitted to the UK.

This means money or property is brought into the UK for their benefit.

There are exemptions including:

• Personal effects;
• Assets costing under £1k;
• Assets brought to the UK for repair; and
• Assets in the UK for less than 275 days.

Question 18

What is the impact of res/dom on CGT?

Answer 18

CGT is similar to the income tax rules:

• UK res + dom: CGT on worldwide gains;
• UK res non-dom: CGT on UK gains, worldwide gains only if remitted;
• UK non-res: Not liable, unless the non-resident status is temporary.

Question 19

What CGT do non-residents have to pay within the UK?

Answer 19

Temporary non-residents have to pay UK tax on UK gains.

However if you are non-resident for 5 years or more you don’t pay UK CGT on anything (including assets in the UK).

Question 20

Additional tax chages for non-doms

Any exceptions?

Answer 20

There is a special tax charge for resident non-doms who use the remittance basis (since they’re protected from tax on worldwide income).

• £30k charge if resident for 7 out of last 9 years;
• £60k charge if resident for 12 of the last 14 tax years;
• £90k if resident for 17 out of 20 years

It doesn’t apply to under 18s or those with less than £2k unremitted gains.

However claiming remittance basis also means you get no personal allowance of CGT annual allowance

Question 21

Who sets res/dom status and how is it applied practically?

Answer 21

Each individual is responsible for determining their own res/dom status, you don’t need to apply for it or get agreement in advance from HMRC.

You would state your status when you complete self assessment and then be taxed accordingly.

Note that if overseas employment income is below £10k you don’t need to file a self assessment return.

Question 22

Res/Dom

What is double taxation?

Answer 22

Double taxation is the rule set for people who pay tax in more than one country. Double taxation treaties between countries should lead to each person having a single country of residence.

As a result residents of other countries may be able to apply for total or partial exemption from some income taxes or CGT (if they’re going to be taxed in their country of residence).

Generally however double taxation relief is claimed where you have paid tax abroad and get charged tax again in the UK. You can claim the tax already paid abroad as a credit against your UK tax. Can only reduce tax to zero, UK won’t pay you back if the foreign tax rate is higher than UK rate!

Question 23

Res/Dom

Are overseas trusts subject to income tax, CGT?

What about IHT charges on transfers into overseas trusts?

Where are overseas trusts generally taxed?

Answer 23

• Overseas trusts are subject to UK income tax if there is a UK resident trustee;
• However they are not subject to CGT;
• A transfer of property into an overseas trust will be subject to normal IHT rules (since it is a transfer of value);
• Typically however overseas trusts are subject to tax in their country of residence.

Question 24

Domicile

What counts as remitance?

Answer 24

The definition of remittance is quite wide, so there are lots of ways a non-dom could get caught out.

For example if you pay a UK debt with cash from foreign assets.

Or if you sell a foreign asset and buy one somewhere else, but route the money through a UK bank account, this is remittance.