How Are Individals Taxed Flashcards
Outline the tax planning concepts
Residence & domicile identify if person has a fiscal connection to a jurisdiction & whether subject to taxation
Rules differ between jurisdictions
Fiscal connections - citizenship, employment or location of assets/ clients can be connected to more than 1
Outline how residency effects taxation
Significant bearing on uk tax liability & determines basis subject to
Prior finance act 2013 residence not defined in tax legislation/ terms understanding evolved based on legal cases decided by courts - therefore no clear principles set
Outline when you would be treated as UK resident
Physically present in UK 183 days out of tax year
Intention to permanently live there
Spend 91 + days each year for 3 years / treated as uk resident @ start of 4th
Live in UK but go abroad for short period
Remain in UK for least 2 years for purpose / employment
Ownership of assets, family, social or business ties
*offshore clients take great care to count number of days spent in U.K. to ensure don’t become resident / only days present at midnight are counted
Outline how individuals lose residency
Demonstrate they had served most ongoing links with UK
HMRC make decisions whether person lose residence
- ppl deemed U.K resident for particular tax year but not typically resident there
- no statutory definition / new stat test abolished concept
- ordinary residence for tax purposes was separate concept for tax residence/ bearing on tax liability
Outline dual residence & double taxation agreements
Possible to be resident in U.K. & elsewhere for tax purposes
Such individuals taxed in accordance with agreements that exist between them
Double taxation agreements
- different countries have different rules / possible to become liable for both on same income
- make a claim
- to avoid this agreements negotiated with number of countries
Outline domicile
Not defined in tax legislation
Distinct from persons nationality & place of permanent residency / place they live
Deemed domicile
-person becomes deemed for IHT purposes only if been present in U.K. for any 17/20 last fiscal years
-doesn’t impact persons income tax or CGT
Outline types of domicile
Origin
- acquired when individual is born / from father unless parents not married then take mothers
- retained until person acquires domicile by choice
Choice
- person must leave current country & settle in another
- not sufficient to be present there by choice/ demonstrate strong evidence of interest to leave UK permanently
- abandon choice & revert back to origin by ceasing to reside there & intend to permanently
Dependence
- until person legal capacity to change domicile/ follow person who’s legally dependent
- prior 1974 women automatically acquired husbands
Outline factors to acquire a new domicile
Business interests
Intentions
Permanent residence
Social & family interests
Properly owned
how to become non domicile
Unless contingency period if clear & likely to occur
-spouse dies or finish research
Outline the basis of taxation
Arising Basis
- individuals UK resident
- pay U.K tax on all of their income as it arises & on gains accrued / wherever they are worldwide
Remittance basis
-available people who are U.K. Resident but not domiciled in UK / can choose
- pay U.K tax on amount of foreign income & gains remitted back to U.K
- pay normal tax on income accrued there
Individuals not resident but domiciled can use this basis in respect of foreign income / not gains
If long term UK resident (7/9 tax years) decides to claim remittance - may pay remittance basis charge
RBC - annual change / higher rate than those uk resident for +12 years
Outline the statutory residence test
U.K gov acknowledged complexity of residence rules / introduced new test as part of finance act 2013
Supersedes all previous legislation, case law & guidance
Provides certainty of rules & encourages investors to UK
Test applies for all purposes establishing residence status for IT, IHT, Corp Tax, CGT
Legislation provides person resident if spent 183 days in UK / if not subject to series of tests
- automatic overseas tests
- automatic uk tests
- sufficient ties test
+non uk resident if meet requirements of automatic overseas test
+uk resident if don’t meet above & meet one of automatic uk tests or sufficient ties test
Outline automatic overseas tests
Resident in UK for more than 1/3 tax years previously & spend fewer 16 days in U.K
Not resident in U.K for three preceding tax years & spend fewer 46 days
You work Full time overseas throughout tax year without significant break & spend fewer 91 days in U.K or number of days work for more than 3 hours = less than 31
Outline the automatic uk test
Spend 183 days in uk
Have a home in the uk during or part of tax year
meet this test if at least one period of 91 consecutive days at least 30 / spend sufficient time in U.K home / and either have no overseas home or have a home which spend no permitted time there
Outline the sufficient ties test
Used last if not conclusive
Sets out five ties to the UK which considered together with number of days spent there / dictate number of potential uk ties needed to be resident
1) Family
2) accommodation - available continuously for 91 days / ignore breaks less than 61 / spend at least 1 night there
3) substantive work - 40 hours or more
4) U.K presence in previous 2 tax years / more than 90 days in each
5) more days spent in U.K than other country / catch leavers who didn’t take residence following period in UK
+wether person tax resident 3 years before tax year in question
