Chapter 5 – Residence and Domicile (2 Or 3) Marks

Question 1

There is the test to decide if someone is a UK Resident or not?

Answer 1

There is a three-part statutory test to determine residence. The test is carried out in order from test 1 to test 3 as seen below.

1) Automatic Overseas Test
Includes 3 different sub tests

2) Automatic Residence Test
Includes 3 different sub tests

3) Sufficient Ties test
This test sets out five potential ties to the UK which are considered such as family or work , together with the number of days spent in the UK, to determine a residency status.

READ 5.3 for more detail as each test as specific requirements. LEARN A FEW PRIOR TO EXAM

Remember: if you’ve been in the UK for 183 days or more, you’ll be a UK resident. There is no need to consider any other tests!

Question 2

There is a three-part statutory test to determine residence. What is the first part to this test?

Answer 2

Automatic Overseas Test

If residency isn’t conclusive from this test, it is then moved to the Automatic Residence Test

Then if not conclusive again it is the Sufficient Ties test

Question 3

What is an ‘arriver’

What is a ‘leaver’

Answer 3

Both these terms relate to The Sufficient Ties test

Arriver = Someone who is not resident in the UK in the previous 3 tax years

Leaver = UK resident for at least one of the previous 3 tax years

Question 4

Remember: if you’ve been in the UK for 183 days or more, you’ll be a UK resident. There is no need to consider any other tests!

Question 5

What is a persons domicile?

There are 4 types. What are they?

Answer 5

An individual’s domicile is the country that is their ‘real’ or permanent home which, if they have left, they intend to return to

4 types:
Domicile of origin -
The domicile you acquire at birth from parents. Usually father’s but if illegitimate or father is dead you acquire mums

Domicile of dependence -
Where an individual is legally dependent on another person (e.g. because they are a minor child) they will automatically have the same domicile as the other person.

Domicile of choice -
Where an individual can change their domicile (only available after they turn 16years old). Do this by settling permanently in the new country. No clear rules on this. Just where an individuals actions show clear intention to live in that new country.

Question 6

An individuals domicile automatically reverts to domicile of origin if they revoke their domicile of choice. True or false?

Answer 6

True

Question 7

Someone has successfully changed their domicile through domicile of choice rules.

How long does the IHT regime still treat them as being a UK domicile?

Answer 7

IHT treats them as being UK domicile for 5 years after the domicile of choice is created

This is called ‘deemed domicile’ and only relates to IHT

Question 8

What is deemed domicile?

Answer 8

Relates ONLY to IHT

Question 9

Those domiciled in the UK are liable to IHT on their worldwide property

Those domiciled in the UK are liable to IHT on their worldwide property

True or false?

Answer 9

Those domiciled in the UK are liable to IHT on their worldwide property - True

Those non-UK domiciled are only liable to UK IHT on their property situated in the UK - True

Property doesnt necessarily mean bricks and morta

Question 10

Individuals are deemed UK domicile for IHT purposes if they have been RESIDENT in the UK for at least 15 out of the last 20 tax years. True or false

Answer 10

True

Question 11

a non-domiciled born in the UK with a UK ‘domicile of origin’ will be treated as a deemed UK domicile for income tax and CGT purposes. True or false

Answer 11

True

Question 12

Tell me the differences of how Income tax, CGT and IHT is treated between UK residents and Non-UK residents, when they both have domicile

Tell me the differences of how Income tax, CGT and IHT is treated between UK residents and Non-UK residents, when they do not have domicile

Answer 12

Uk domicile & Resident =

Uk domicile but non resident =

Non Uk domicile but resident =

Non uk domicile and non resident =

Question 13

DO ACTIVITY 5.1. GOOD FOR UNDERTSTANDING

Question 14

What is the Remittance basis in relation to tax?

Answer 14

1 of the 2 main ways an an individual is assessed for tax

Where the individual is taxable only on UK income remitted in the UK. Ie, any income from foreign investments that you remit (bring in) into the UK

This includes:

Money or property brought to, received in, used in the UK by or for the benefit of a relevant person; or
Services are provided in the UK for the benefit of such a person

The remittance basis is not automatic option for:

1. adults who have been resident in the UK for at least 7 of the previous 9 tax years. They must pay £30,000 annually to carry on being taxed under the remittance basis.
2. Adults who have been resident in the UK for at least 12 out of the previous 14 tax years. They must pay £60000
3. Adults who have been resident in the UK for at least 15 out of the previous 20 tax years will be treated as deemed domicile (as we saw earlier) and they will also not be eligible for treatment under the remittance basis.

If they do not pay the charge or are not on a remittance basis they will then be taxed on an arising basis which is worse as it means you are taxed on all world income. (see the differences between the remittance basis and arising basis)

This can often involve a calculation to see whether it is better for the individual simply to pay on the arising basis alone, or pay the charge for the benefit of paying via the remittance basis

A further consideration for this calculation is that individuals who claim the remittance basis lose their entitlement to the income tax personal allowance and the CGT annual exempt amount than if they were taxed on an arising basis

Question 15

There are two main ways of being assessed for UK tax

Answer 15

An arising basis = UK tax is paid as it arises on UK income and ALL foreign income (ie, taxed on ALL their worldwide income and gain)

A remittance basis = UK tax is paid as it arises on UK income and ONLY paid on foreign income that they remit (bring into) the UK. It is not paid on foreign income completely outside the UK

Question 16

In this ‘global economy’ there are many individuals who might receive income or gains from one country, be resident in another and get taxed by both!

What do the UK have in place to prevent this?

Answer 16

To help avoid this issue, the UK has agreed over 100 ‘double tax treaties/agreements’ with other countries.

There are a lot of different rules and regulations, but to give you a flavour it is likely that non-UK residents will receive relief from UK tax on income sources such as:

Pensions (other than UK state pensions)
Royalties
Dividends
Interest
Earnings / profits from employment / services carried out in the UK

Question 17

Residence and Domicile Summary:

Residence is determined by where you live and work
It is acquired at birth, often in the UK it is governed by your fathers

Domicile is more permanent. It is often where you perceive home
Few people change their domicile throughout their lives

UK domicile must be acquired/removed by your actions rather than being a choice you can make with little consideration

Double taxation arrangements often ensure that you are not taxed twice in different countries

An individual’s liability to tax in the UK, be that income tax, CGT or IHT depends on their circumstances

Offshore trusts exist and their liability to UK tax often depends on the trustees’ circumstances

Question 18

An individual has come to the UK for the first time to take a medical degree at a top UK university. The course is designed to take 5 years. How will her residency status be assessed for tax purposes?

She will be classed as resident from the start of the fourth tax year

She will be classed as resident after 91 days

She will be classed as resident after 183 days

She will not be classed as resident as she will be a temporary immigrant

Answer 18

She will be classed as resident after 183 days

Under the second part of the statutory test of residence, an individual who is in the UK for 183 days or more in the tax year will be automatically regarded as being UK resident

Question 19

Cesc is domiciled in Spain but has been working in the UK for the past 6 years. His company is looking to extend his contract in the UK for a further 2 years and he is keen for that to happen. He should be aware that:

The arising basis on overseas income will automatically apply

His UK income will not be taxed in the UK if he remits it all to Spain

His UK income will not be taxed in the UK if he continues to work for his Spanish employer

An annual tax charge of £30,000 could be levied

Answer 19

An annual tax charge of £30,000 could be levied

Cesc can currently use the remittance basis of taxation with no charge as he has only been UK for the last 6 years. However, should his contract be extended for a further 2 years he will have been resident for 7 out of the last 9 tax years and, to be able to keep using the remittance basis of tax, he would be liable for the annual charge of £30,000

Question 20

Ronnie used to be resident in the UK but chose to retire to France, although he still considers himself to be ‘British’ and may well return to the UK in the future. He is in his sixth year of non-UK residency. He decides to encash an old UK-based unit trust. He would be…

Subject to UK Capital Gains Tax on the disposal

Subject to UK IHT on the disposal

Free of UK Capital Gains Tax on the disposal

Free of UK Capital Gains Tax on disposal, but only if he has paid the annual charge

Answer 20

Free of UK Capital Gains Tax on the disposal

Ronnie has been resident outside the UK for more than 5 years and therefore the disposal would be free of UK CGT