Taxation Topic 1 - Domicile and Residence

Question 1

What is the difference between domicile and residence

Answer 1

Residence – an individual’s status in any tax year. Helps to determine whether someone pays income tax and CGT in the UK.

Domicile – the country that an individual regards as being their permanent home. Domicile determines a person’s IHT liabilities within the UK and if they qualify for the remittance basis for income tax and CGT

Question 2

What is the remittance basis

Answer 2

Remittance basis – where you are taxed on foreign profits if they are brought back to (or ‘remitted’) to the UK – stops double taxation.

Question 3

What test determines UK residence

Answer 3

statutory residence test

Question 4

What are the 4 stages of the statutory residence test

Answer 4

1. Anyone who spends 183 or more days in the UK in a tax year is resident in the UK for that year
2. Automatic overseas test
3. Automatic UK tests
4. Sufficient ties test

Question 5

Automatic overseas tests

Answer 5

• If the person spends less than 16 days in the UK for the tax year
• If the person wasn’t UK resident for past 3 tax years and spend less than 46 days in the tax year
• The person works full-time overseas and spends less than 91 days in the UK (fewer than 31 days are working days)
• The person dies having spent less than 46 days in the UK and was not resident for previous 2 tax years

Question 6

Automatic UK tests

Answer 6

• Person has 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 they either have no home overseas or spend less than 30 separate days in a tax year at any overseas home
• They work full time in the UK for a period of 365 days or more, that part of or all fall into the tax year with no significant breaks from UK work

Question 7

Sufficient ties tests

Answer 7

• Family tie – spouse, co-habiting partner or minor child (unless child is in UK for studying or haven’t seen the child for more than 60 days of the tax year
• Accommodation tie – if the individual has accommodation in the UK that is available to them for a continuous period of 91 days, and if they spend at least 1 night there in the tax year
• Work tie – if they work for more than 3 hours a day for at least 40 days
• 90-day tie – if individual spent more than 90 days in either or both of the 2 previous tax years
• Country tie – UK if the country that the person has spent the greatest number of days in the tax year

Question 8

What is the dependant factor relating to sufficient ties tests

Answer 8

Number of ties varies depending on previous residence status and number of days spent in UK for the current tax year

Question 9

What is the rule for individuals being counted as being in the UK and the exceptions

Answer 9

An individual is typically counted as being in the UK if they are in the UK at midnight, exceptions being people solely in for transit (plane passengers) or those due to exceptional circumstances (medical emergency)

Question 10

Domicile is the idea of ‘home’, what is the 2 categories of domicile

Answer 10

Domicile of origin – when born, you take your parents domicile until you are 16, where you are then allowed to change to a domicile of choice

Domicile of choice – where an adult can change their ‘home’, long process with lots of proof required e.g. change of residence etc.

Question 11

Factors taken into account in determining whether an individual can change their domicile

Answer 11

• Is the person physically living there
• Is there intention of staying there
• Have they bought property there and disposed of all UK property
• Have they started working there
• Do they have involvement in the local communities
• Are they acquiring citizenship

Question 12

Someone is deemed domicile if they are…

Answer 12

UK resident for the previous 15 out of 20 tax years

Question 13

If you are deemed domicile,what tax rules apply to you

Answer 13

• all tax rules are applied meaning foreign and UK assets are subject to IHT
• For income tax and CGT, they can lose their deemed domicile after leaving the UK for at least 6 years, if they return after this the 15-year countdown is restarted from 0. For IHT, they lose their deemed domicile after 4 tax years

Question 14

Tax liabilities for deemed/domiciled in the UK - Residents

Answer 14

Income tax – chargeable on worldwide income, but double taxation relief available if taxes are paid overseas and from the UK

CGT – chargeable on worldwide gains

IHT – chargeable on the gift of assets worldwide

Question 15

Tax liabilities for deemed/domiciled in the UK - Non-residents

Answer 15

Income tax –

• Non-residents who have moved away for sufficient time usually not liable
• Non-residents only pay on profits earned through UK branch
• No liability on overseas investment income or British gov. securities (Gilts)

CGT -

• Generally no CGT paid for gains made by non-resident (unless temporary non-resident)
• If assets were acquired before being non-resident, must be non-resident for at least 5 years
• Since 2015, all UK property is subject to CGT for non-residents upon disposal
• Disposal of any assets through UK branch is taxable

Question 16

Tax liabilities for individuals not domiciled in the UK - Income tax

Answer 16

• This is where remittance basis can be applied
• Even if they are eligible, they are not required to use the remittance basis, can use arising basis
• The annual charge can be applied here after qualifying years

Question 17

What is the annual charge when talkign about remittance basis

Answer 17

• Charge paid for having access to the remittance basis after a certain number of years
• The annual charge is £30k for adults who have been resident for 7 of the previous 9 years
• Annual tax charge increases to £60k once adults have been resident in the UK for 12 of the previous 14 years

Question 18

Tax liabilities for individuals not domiciled in the UK - CGT

Answer 18

• Individuals not domiciled but resident are subject to CGT on disposal of UK assets. Gains made outside of the UK may be taxed on the remittance basis.
• If a person chooses not to use the remittance basis, all worldwide gains are subject to CGT.

Question 19

Tax liabilities for individuals not domiciled in the UK - IHT

Answer 19

Where an individual is not domicile or deemed to be domicile, IHT is only payable on assets in the UK (UK gov. securities removed from assessment for IHT)

Where a non-domiciled person has a UK domiciled partner, and has opted to be domiciled for IHT purposes, then their worldwide assets will be assessed for IHT.