Domicile and Residence in the UK
Posted on 25th October 2018 at 23:36
Although you may not be UK resident under the Statutory Residence Test you may earn income in the UK, for example from employment or self-employment where you carry out some work when you’re physically in the UK, or you may come to the UK on a short secondment for your overseas employer. You will normally pay UK tax on any earnings for work that you do in the UK and on any other income you have which arises in the UK, for example bank interest, rental income from UK properties.
Non-resident landlords
If you will have rental income from property in the UK, this income will be liable to UK tax whether or not you’re resident in the UK. If you sell or dispose of a UK residential property you may have to pay Capital Gains Tax on the gains you make.
Tax liability in the year you arrive in or depart from the UK
You’re either UK resident or not UK resident for a full tax year. If you leave or come to the UK part way through a tax year, the year may be split: this is referred to as split year treatment. Broadly speaking, this is where you pay UK tax on the foreign income and gains which arise in the UK part of the split year, but not on those foreign income and gains which arise in the overseas part of that tax year.
Am I UK resident for tax purposes? – standard test
You are likely to be treated as UK resident under if you:
- spend 183 or more days in the UK in the tax year
- have a home in the UK, and don’t have a home overseas
- work full-time in the UK over a period of 365 days
You could still be treated as UK resident even if you do not satisfy these conditions. This will depend on the number of connections you’ve to the UK and the amount of time you spend here.
What if I come to the UK but I am not working?
If you’ve come to the UK to live, even if you’re not working here, you could still have overseas income and gains or UK source income and gains. You should consider whether you need to complete a Self-Assessment tax return.
Self-employment – business commencement and cessation provisions
As a non-UK resident you will pay tax on profits:
- from a trade, profession or vocation (business) you carry on in the UK
- from the UK part of a business carried on partly in the UK and partly elsewhere
There are special rules which apply when you start or end your business (‘commencement’ and ‘cessation’ rules). These rules may apply when you cease to be resident in the UK even though you’ve not started or ended your business. The commencement and cessation rules will apply if you:
- have been carrying on a business
- cease being resident in the UK
And you continue to carry on that business. You’re ‘deemed’ to have ceased one business and started another from the date of the change in your UK residence status or, if split year treatment applies, from the split year date.
How does domicile affect your UK Income Tax and Capital Gains Tax liability?
For Income Tax and Capital Gains Tax purposes, whether or not you’re domiciled in the UK may affect what UK tax you pay on any foreign income and gains during a tax year. If you don’t have foreign income and gains then your domicile status has no bearing on your UK Income Tax or Capital Gains Tax position and you do not need to consider it.
What does domicile mean?
Your domicile status is decided under general law, which means it must be interpreted according to previous rulings of the courts. There are many things which affect your domicile. Some of the main points are:
-you can’t be without a domicile
-you can only have one domicile at a time
-you’re normally regarded as domiciled in the country where you’ve your permanent home
-your existing domicile will continue until you acquire a new one
-your domicile is distinct from your nationality, citizenship and your residence status, although these can have an impact on your domicile.
The UK has 3 territories for domicile:
-England and Wales
-Scotland
-Northern Ireland
References we make in this guidance to being ‘domiciled in the UK’ are references to being domiciled in any part of the UK.
Domicile of origin
You normally acquire a domicile of origin from your father when you’re born (see also ‘domicile of dependence’). Your domicile of origin will often be the country in which you were born. However, if you were born in a country and your father was not domiciled there at the time you were born, then your domicile of origin may be your father’s country of domicile.
Domicile of choice
You’ve the legal capacity to acquire a new domicile at the age of 16. Broadly, to acquire a domicile of choice, you must:
- leave your current country of domicile
- settle in another country
When you reach 16, you will acquire a domicile of choice if you:
- are already living in a country other than that of your domicile of origin
- you intend to remain there permanently or indefinitely
In either case, HMRC may ask you to provide evidence that you intend to live in that other country permanently or indefinitely.
Deemed domicile
From 6 April 2017 new deemed domiciled rules apply which change the way a previously UK resident but not UK domiciled individual is treated. An individual who is not domiciled under English common law will be treated as domiciled in the UK for tax purposes if they meet 1 of 2 conditions.
Condition A – the individual:
- was born in the UK
- their domicile of origin was in the UK
- was resident in the UK for 2017 to 2018 or later years
Condition B – the individual:
- has been UK resident for at least 15 of the 20 years immediately before the relevant tax year.
When might HMRC challenge your domicile status?
HMRC don’t normally challenge any person who says they have a UK domicile. If you say you’ve a non-UK domicile, HMRC might want to check whether or not that is correct, particularly if you were born in the UK.
Employment income – where your duties are carried out
Where you actually carry out your employment duties determines whether your earnings from the employment are earned in the UK or overseas. Where you perform duties in the UK and overseas in a tax year, your annual earnings are normally apportioned based on the number of workdays you’ve done in the UK and the number of workdays you’ve done overseas.
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