Section 5 - Residence and Domicile Flashcards
Residence: Status in any one year
Domicile: country an individual regards as permanent home
Statutory residence tests introduced from 6th April 2013
Automatically Not Resident in the UK
In the UK fewer than 16 days in tax year
Not resident for any of previous 3 tax years and in UK for fewer than 46 days in current tax year
Left the UK to carry out full time work abroad, provided in the UK for fewer than 91 days in tax year, and fewer than 31 days in tax year are spent working in the UK
Automatically Resident in the UK
In the UK for 183 days or more in tax year
Only home is in the UK
Carrying out full time work in the UK
Split Year
Normally resident or non-resident for a full tax year
But year can be split - when leaving/arriving in UK
Days in the UK
Day in which present at midnight counts as a day of presence in the UK
Sufficient Ties Test
Used if automatic rules don’t apply
Residence determined by sufficient ties test:
- Spouse, civil partner or minor children resident in UK
- Accommodation in UK made use of during year
- Doing 40 or more days’ work in UK during tax year
- Spending more than 90 days in UK during each of previous 2 years
- Spending more time tin the UK than in any other single country
Examples:
A person who has been UK resident for previous 3 years is usually someone leaving the UK - for them all 5 of the UK ties are relevant
A person who has not been resident will usually be someone arriving in the UK - for the, only first 4 ties are relevant
Residency is determined by number of days spent in UK against how many UK ties they have
It is more difficult for someone leaving the UK to become non-resident than it is for someone arriving in the UK to stay a non-resident
Deeming Rule
Applies where person:
- Has 3 or more ties to the UK in tax year
- Has been present in the UK on more than 30 days without being present at midnight - qualifying days
- Has been UK resident in one or more of previous three tax years
If all three conditions are met, then deeming rule means that after first 30 qualifying days all subsequent days within the tax year are treated as days of presence
Domicile
Country is a natural home
More permanent concept than residence
Not possible to have dual domicile under UK law
Domicile of Origin:
- Child takes father’s domicile in England and Wales/or mother’s if illegitimate
- Child’s domicile follows parents until age 16
- Wife’s domicile is independent of husbands
Domicile of choice:
- Acquiring new domicile by moving to new country
- With intention of permanently living there
Deemed UK domiciled if resident in the UK for 15 out of last 20 tax years
If born in UK, with UK domicile of origin, and return to UK and become UK resident having previously become domiciled in another country will be deemed domicile for income tax and CGT straight away
- Only deemed domicile for IHT under above rule if also been resident in the UK for at least 1 out of previous 2 tax years
UK domicile - liable to IHT on worldwide assets
Non-UK domicile - liable to IHT on UK property only
UK domicile is kept for 3 years after emigrating and acquiring a domicile of choice
UK deemed domicile under 15/20 tax year rule kept for 6 tax years after leave UK for both income tax and CGT, 4 tax years for IHT
Individuals domiciled outside the UK who have a UK-domiciled spouse/civil partner can elect to be treated as UK domiciled for IHT purposes
Liability to Tax of UK Domiciles
UK Resident:
- Income tax on worldwide earned and investment income (whether or not brought into UK)
- 100% of income from foreign pensions is taxable
- CGT charged on worldwide gains (but, if become deemed domicile under 15/20 tax year rule and previously paid annual tax charge for any year prior to April 2017 can rebase overseas assets to market value on 5th April 2017)
- IHT charged on gifts of assets worldwide
Non-UK Resident:
- No UK income tax liability on earned income for duties outside of UK
- No UK income tax on overseas investment income and gilts
- UK investment income generally taxable
- Uk State Pension and other UK pension income taxable
- Not normally liable to CGT unless temporary residents - except for UK residential property gains accrued post 5th April 2015 which are chargeable (PPR (Principal Private Residence) may apply) and gains on non-residential UK property since 6th April 2019
- IHT charged on worldwide gains
Liability to Tax of Non-UK Domiciles
Remittance Basis - taxed only on income/gains remitted to UK (This means only income/gains brought into the UK (remitted) are taxed)
Income and gains are treated as if remitted to UK if:
- Money or property is brought to UK for benefit of relevant person
- The property is directly/indirectly derived from the income or gains
Exemptions include:
- Personal effects
- Assets costing less than £1,000
- Assets brought back into UK for repair
- Assets in the UK for a period of less than 275 days
Annual Tax Charge:
- £30,000 charge for adults who have been UK resident for 7 out of last 9 years/who claim the remittance basis
- £60,000 for individuals resident in the UK for at least 12 of the previous 14 tax years
- Under 18’s - doesn’t apply or if unremitted gains are less than £2,000
- If remittance basis claimed - no entitlement to personal allowance or CGT annual exempt amount
- Charge is in respect of income and gains left outside UK and is in addition to tax paid on remittance
Non-Domiciled Resident
Income Tax:
- Employment income is fully taxable if duties performed in UK or employer is UK based (or both)
CGT:
- Automatically subject to CGT on disposal of UK assets
Gains outside UK are taxed on remittance basis if claim made
Where remittance basis not used - all worldwide gains liable to CGT
IHT only on transfers of property within UK
Non-Domiciled Non-Resident
Income Tax:
- liable on UK investment income, employment duties carried on within UK and income arising from property within UK
CGT:
- not liable unless temporary non-resident (with exemption of residential and non-residential UK property)
IHT liable on gifts of assets situated within UK
Self-Assessment
Individuals responsible for determining own residence and domicile status
Not necessary to obtain advance agreement from HMRC for non-residence or non-domicile status
No return needed if overseas employment income less than £10,000
Double Taxation Relief
Most double taxation treaties lay down process for determining single residence status
May be able to claim exemption (total or partial) from UK tax on some types of income from UK sources
May also be able to claim exemption from CGT on disposal of assets
CGT:
- double taxation treaties usually give relief by making the foreign tax a credit against UK tax, but if foreign tax is higher then the excess cannot be repaid
Offshore Trusts
Overseas trusts subject to UK income tax if UK resident trustee
Overseas trust not subject to CGT
Transfer of property into overseas trust is transfer of value and normal IHT rules apply
Overseas trusts subject to local taxation in country of residence
