Domicile And Residence Flashcards
What is a resident?
an individual’s status in any single tax year.
helps to determine whether or not a person pays income tax and capital gains tax (CGT) in the UK
What is a Domicile?
the country that an individual regards as being their permanent home.
-determines a person’s liability to inheritance tax in the UK and whether they qualify for the remittance basis for income tax and CGT.
How is a residence determined?
Residence is determined by a statutory residence test
Anyone who spends 183 or more days in the UK in a tax year is resident in the UK for that tax year.
Automatic overseas tests – if any one of these tests is satisfied by an individual, the individual is not UK resident for this tax year.
Automatic UK tests – if none of the automatic overseas tests are met, then an individual is a UK resident if either one of the two automatic UK tests are satisfied.
Sufficient ties test – if none of the automatic overseas tests and none of the automatic UK tests are met, an individual will still be classed as UK resident if they have sufficient ties in respect of the tax year.
What is the automatic overseas test?
if any one of these tests is satisfied by an individual, the individual is not UK resident for the current tax year:
An individual is non‐UK resident for a tax year if:
1. they spend less than 16 days in the UK in the tax year; or
2. they were not UK resident in any of the previous three tax years and spend less than 46 days in the UK in the current tax year; or
3. they work full‐time overseas in the current tax year and spend less than 91 days in the UK in the tax year, of which fewer than 31 days are working days; or
4. they die having spent less than 46 days in the UK in the current tax year and they were not UK resident in the previous two tax years (or they were not UK resident in the previous tax year and the year before that was a split year because they had left the UK
What is Automatic UK tests? What is it used for?
If none of the automatic overseas tests are met, then an individual is a UK resident if any one of the automatic UK tests is satisfied:
1. they have a home in the UK for more than 90 days in which they are present on 30 days or more in the tax year, providing that for at least 91 consecutive days, of which at least one falls into the current tax year, they either have no home overseas or they spend less than 30 separate days in a tax year at any overseas home; or
- they work full time in the UK for a period of 365 days or more, part or all of which falls within the current tax year, with no significant breaks from UK work (and more than 75 per cent of days on which the individual does more than three hours’ work are days on which they carry out more than three hours’ work in the UK).
What is the sufficient ties test?
If none of the automatic overseas tests and none of the automatic UK tests apply, an individual will still be classed as UK resident if they have sufficient ties for the tax year:
1. Family tie: the individual’s spouse/civil partner (unless separated), co‐habiting partner or minor child (unless the child is in the UK for educational purposes or the individual doesn’t see the child for more than 60 days in the tax year) is resident in the UK in the current tax year.
2. Accommodation tie: the individual has accommodation in the UK that is available to them for a continuous period of at least 91 days, ignoring any gaps of less than 16 days between periods of availability. They spend at least one night there (or 16 nights if it is a close relative’s home) in the tax year.
3. Work tie: the individual works in the UK for more than three hours per day for at least 40 days in the tax year.
4. 90‐day tie: the individual has spent more than 90 days in the UK in either or both of the two previous tax years.
5. Country tie: the UK is the country where the individual has spent the greatest number of days in the tax year.
How is sufficient ties test determine?
The number of ties required depends on the individual’s previous residence status and the number of days spent in the UK in the current tax year:
Days spent in the UK in current tax year: 16–45 —4 ties
46–90 - 3 or more
91–120 —-2 or more
121–182 — 1 or more
2 forms of domicile?
Domicile of origin is acquired at birth by automatically adopting the father’s domicile if the parents are married at the time the child is born, or the mother’s domicile if they are not.
- Domicile of choice is established when an adult displays a clear intention to make a home elsewhere. A high standard of proof is needed to establish a change of domicile and requires positive action, such as changing residence, obtaining citizenship of the new country, making a will under the laws of the new country, etc.
What is deemed domicile?
any individual who has been resident in the UK for at least 15 of the past 20 tax years is deemed UK domiciled for tax purposes. From the 16th year a foreign domiciliary is deemed to be UK domiciled.
For income tax and CGT, an individual can lose their deemed domicile if they leave the UK for at least six tax years. I
What are the Liability to tax of individuals domiciled or deemed to be domiciled in the UK for a Resident?
Resident: Income tax – chargeable on worldwide earned, trading and investment income. However, double taxation relief is available for tax suffered overseas on income subject to UK tax.
Capital gains tax – chargeable on worldwide gains.
Inheritance tax – chargeable on the gift of assets anywhere in the world.
Liability deemed domicile but not a resident?
Income tax.
— Individuals who become non‐resident by moving abroad for sufficient time
usually have no liability for tax on overseas employment income.
— Individuals who are not resident in the UK will only be subject to trading profits earned through a UK branch or agency.
— There is no liability to tax on overseas investment income or British government securities.
— Other UK savings and investment income are taxable, but the total of a non‐resident’s income tax liability will be limited to the sum of the income tax deducted at source (if any), with no personal allowances.
Capital gains tax.
— Generally, there will be no CGT on gains made by a non‐resident, unless the
person is a temporary non‐resident.
— If a person has assets acquired before they left the UK, to be free from CGT the individual would have to be non‐resident for at least five years.
— Since 6 April 2015, a non‐resident has been subject to CGT on the disposal of UK residential property. If a property was owned before 6 April 2015, the taxable gain will relate to the period of ownership from 6 April 2015. Since April 2019, this rule has been extended to all UK property and land held by a non‐resident.
— Even though a person may be non‐resident, should they carry out a trade or profession through a UK agency or branch and dispose of an asset used in the branch or agency, it will be taxable.
What is Liability to tax of individuals not domiciled in the UK for income tax?
May choose to use the remittance basis, they will pay UK tax on their UK source income and gains as they arise or accrue. But they only have to account for UK tax on foreign income and/or gains when they bring them into the UK
they might still decide instead to pay UK tax on their worldwide income and gains on the arising basis and claim relief from UK tax for foreign tax that they have also had to pay. They may choose to do this rather than lose their personal allowances and pay the annual charge as their tax bill could be higher on the remittance basis.
The annual tax charge to access the remittance basis is £30,000 for adults who have been resident in the UK for 7 out of the previous 9 years.
The annual tax charge increases to £60,000 once adults have been resident in the UK for 12 out of the last 14 years.
Exemptions to this charge are:
if the person is under the age of 18;
if they have less than £2,000 unremitted foreign income and/or gains that arise in the relevant tax year (this allowance is also available for individuals deemed to be UK domiciled after 15 years of residence);
if they pay the UK tax on their worldwide income and gains. The annual charge is paid through the self‐assessment system.
What is Liability to tax of individuals not domiciled in the UK for capital gains tax?
are subject to CGT for gains made on disposal of their UK assets. Gains made outside the UK may be taxed on the remittance basis and will be subject to the annual charge of £30,000 or £60,000
Liability for non domiciled or deemed domiciled for IHT?
IHT is chargeable only on assets in the UK. UK government securities will be excluded from an assessment for inheritance tax.
What is domicile?
Domicile is the home to which an individual would expect to return after a spell abroad.
An individual’s domicile is a more permanent status than residence.
If parents are married at the time of a child’s birth, the child acquires the father’s
domicile.
If parents are not married at the time of a child’s birth or a child is born after the father’s death, the child acquires the mother’s domicile.
Children retain their domicile of birth until the age of 16, after which they can adopt a domicile of choice.
Women married before January 1974 took their husband’s domicile. Since that date women have retained their domicile of origin or choice.
