Chapter 5 - Residence and Domicile

Question 1

Describe the difference between residence and domicile

Answer 1

• Residence - status of an individual in any one tax year
• Domicile - country that an individual regards as their permanent home

Question 2

What are the 3 parts to the Statutory Test of Residence?

Answer 2

• Automatically not resident in UK
• Automatically resident in UK
• Sufficient UK ties

Question 3

Under which 3 circumstances is someone “automatically not resident in UK”?

Answer 3

• Been in the UK fewer than 16 days of the tax year
• Been in the UK fewer than 46 days of the tax year, and not at all in the last 3 tax years
• Works full-time overseas (35+ hours employed or self-employed), as long as they are in the UK less than 91 days of the tax year, and spend fewer than 31 days of the tax year working in the UK (working day defined as a day spent with more than 3 hours working)

Question 4

Under which 3 circumstances is someone “automatically resident in UK”?

Answer 4

• Been in UK 183+ days during the tax year
• Has a home in the UK (for at least 91 consecutive days, of which 30 are in the tax year, and be present in it for 30 days too). If they have an overseas home, they must be present in it less than 91 days. The home does not need to be owned by the person being tested
• Works full time in UK, 365 days, but not necessarily in the tax year

Question 5

What is counted as a present day in the UK?

Answer 5

Any day where they are here at midnight.

If they arrive at 11pm and leave at 2am, they are still present for

Question 6

In which 3 circumstances might someone be given the split-year treatment?

Answer 6

• Leaves the UK for full-time work/comes to UK for full-time work
• Leaves UK to live overseas (must cease UK home)
• Comes to live in UK (must be for full-time work or by meeting UK home test)

Question 7

What is meant by split-treatment of residence status?

Answer 7

You can be both a resident or non-resident in any given tax year under some circumstances

Question 8

How does the split-year treatment of residency affect a spouse or partner who accompanies/joins an individual who leaves UK for full-time work overseas?

Answer 8

They will be granted split-year treatment too

Question 9

If a person doesn’t meet any of the automatic tests, how is their residence status determined?

Answer 9

Sufficient UK ties test

Question 10

What are the 5 potential UK ties under the sufficient UK ties test?

Answer 10

• Having a spouse, civil partner or minor children resident in UK
• Having accomodation in UK that is used during the year (exc. B2L, hotels and short stays with relatives)
• Substanstive work in UK (40+ days a tax year)
• Spends 90+ days in UK during either of the last 2 tax years
• Spending more time in UK than anywhere else

Question 11

How many “days spent in the UK” can be disregarded in exceptional circumstances, such as birth, death and life-threatening illnesses and/or injury, for the purpose of residency tests?

Answer 11

Up to 60 exceptional days

Question 12

It is very important that the 3 residency tests are applied in the correct order. What is the order?

Answer 12

• Automatically non-resident
• Automatically resident
• UK ties

Question 13

In which circumstances will an individual’s residence status be determined according to the sufficient UK ties test?

Answer 13

When it cannot be determined by the automatic tests (which is first the automatic non-resident test, followed by the automatic UK resident test)

Question 14

At birth, what type of domicle is given?

Answer 14

Domicle of origin

Question 15

Who’s domicle does a child take when born if there parents are married and both alive?

Answer 15

The father

Question 16

An individual can acquire a new domicile by moving to a new country with the objective
intention of permanently living there. Which type of domicle is this?

Answer 16

Domicle of choice

Question 17

In which 2 circumstances can a domicile of choice be abandoned?

Answer 17

• Person no longer lives in the place they are domicled in
• They intend to live elsewhere permanently

Question 18

What are the 2 conditions in which someone can be deemed domiciled?

Answer 18

• Condition A - born in UK, return to UK after having made a domicile of choice somewhere else, resident in the UK one of the last 2 tax years.
• Condition B - resident in UK at least 15 of the last 20 tax years. Deemed domicile starts 16th year.

Question 19

Once an individual is deemed domiciled under the 15 out of 20 years’ rule, then for income
tax and CGT purposes, they will remain deemed domiciled for a further HOW MANY tax years after they leave the UK.

Answer 19

6

Question 20

For IHT purposes, when does someone lose their deemed UK domicile status?

Answer 20

Once they have been non-UK resident for 4 consecutive tax years

Question 21

What does it mean when someone opts to pay tax on the remittance basis?

Answer 21

They only pay UK tax on the income or gains brought into the UK

Question 22

If someone opts to pay tax on a remittance basis, what are the annual tax charges?

Answer 22

• Residence in UK 7/9 tax years = £30,000
• Residence in UK 12/14 tax years = £60,000

Question 23

A non-UK domiciled person must report foreign income or gains of at least how much?

Answer 23

£2,000

Question 24

What is the CGT treatment on individuals who are resident in the UK, but not domiciled in UK?

Answer 24

Subject to CGT on gains and disposals on UK assets

Question 25

How will an individual who does not complete the non-residence pages of their self
assessment tax return be treated for tax purposes?

Answer 25

UK resident and UK domicled, therefore subject to tax on worldwide income and gains

Question 26

What is the purpose of double taxation relief?

Answer 26

Stops an indivudual being taxed twice where they earn in one country but are resident in another

Question 27

Why is double taxation not an issue to non-UK residents when it comes to dividends?

Answer 27

Non-residents do not usually pay UK income tax on dividends

Question 28

When does an overseas trust become subject to UK income tax?

Answer 28

When it has a UK trustee

Question 29

The remittance basis is not available for which domicile?

Answer 29

UK

Question 30

Individuals who opt to pay tax on the remittance basis are not usually allowed to claim certain allowances and exemptions such as…

Answer 30

Income tax personal allowances
Capital gains tax annual exemptions

Question 31

If an overseas trust has no UK trustees, when might a beneficiary be taxed still for income tax?

Answer 31

When capital is distributed from a trust within which income is accumulated.

Question 32

Offshore trusts are set up by people domiciled outside of the UK. If however the settlor becomes deemed domiciled after the trust has been established, what happens to the trusts tax advantages?

Answer 32

Retained as long as the settlor (or spouse/partner/minor children), receive no benefit from the trust

Question 33

When is someone deemed to have an “Interest” in a trust, what does this mean?

Answer 33

They could benefit from it in some way

Question 34

What is the CGT treatment on UK beneficiaries of an offshore trust?

Answer 34

Liable unless gains taxable on the settlor

Question 35

Who is responsible for paying the CGT when the settlor retains an interest in the trust property of an offshore trust?

Answer 35

The settlor

Question 36

What is an excluded property trust with regards to IHT planning?

Answer 36

A trust consisting of overseas trust property settled by a UK resident who is not yet UK domiciled. The EPT is for currently non domiciled clients who are likely to have assets in excess of the IHT thresholds and who want to mitigate IHT when they eventually become UK domiciled.

Question 37

Is the trust property in an excluded property trust subject to IHT, if the settlor then becomes UK domiciled?

Answer 37

If the individual subsequently becomes domiciled within the UK, the assets inside the Excluded Property Trust can remain outside the scope of inheritance tax

Question 38

Seb is nine and was born in Singapore to UK domiciled parents who have just established domicile in Australia. Where is Seb now domiciled and why?

Answer 38

Whilst Seb was born in Singapore, his domicile follows that of his parents until age 16. As his parents have just established domicile in Australia, Seb will also take this domicile.