Residence, Domicile, UK Tax Compliance and Other Taxes Flashcards
Residence and Domicile - Definition and key points:
- Residence is the term used to describe the tax status of an individual in a given tax year.
- Domicile is the country that they regard to be their permanent home.
- There are three tests that HMRC can carry out on an individual to determine if they are UK residents or not:
- Three tests mean a person is automatically non-resident (automatic overseas tests).
- Three tests that mean a person is automatically a UK resident (automatic UK tests)
- If none of the above tests apply, the sufficient ties test is used.
- Any day that an individual is physically present in the UK at midnight counts as a day of presence.
- Days in transit between two places outside the UK do not count, nor do days spent in the UK for exceptional circumstances beyond the individual’s control.
Automatic overseas test (automatically not UK resident) - key points:
- Individual in the UK for fewer than 16 days in the current tax year.
- Not UK resident in any of the three preceding tax years and fewer than 46 days in the current tax year.
- Working overseas full-time, spending fewer than 91 days in the UK of which fewer than 31 days were spent working in the UK for 3 hours or more in the current tax year.
Automatic UK test (automatically UK resident) - key points:
You will be automatically a UK resident if:
- You spend 183 days or more in the UK during the current tax year.
- You have a home in the UK for at least 91 days during the current tax year and live there for at least 30 days during the current tax year. If you have an overseas home in that 91-day period, you must have been present there for fewer than 30 days in the current tax year. (in this test, it is not necessary to be present at midnight for days to count).
- Someone who works full-time in the UK
Split-year treatment - key points:
- This applies where a person leaves the UK for full-time work overseas (and ceases to have a UK home) or comes to the UK for full-time work or meets only the UK home test.
- It can also apply to a spouse/ partner who joins an individual who has left the UK full time to work overseas.
For example, if you are eligible for split-year treatment and you come to the UK on 1 July 2020, your residence position for the purposes of calculating your income tax liability in 2020/21 will be as follows: you will be treated as not resident for the period from 6 April 2020 to 30 June 2020 and you will be treated as a UK resident for the period from 1 July 2020 to 5 April 2021.
Sufficient UK ties test - key points:
- Having a house, civil partner, or minor children resident in the UK.
- Having accommodation in the UK that you use during the tax year.
- Working for 40 or more days during a tax year in the UK (doing substantiative work).
- Spending more than 90 days in the UK during either of the previous two tax years
- Spending more time in the UK than any other single country
An individual will need to compare the number of days they are in the UK with the number of UK ties they have. Whether they are a leaver or an arriver.
Arriver or Leaver - sufficient ties test:
Deeming rule - definition and summary:
The deeming rule means that after the first 30 qualifying days, any further qualifying days in a tax year will be deemed to be days when the individual was present in the UK. A qualifying day is one where the individual has been present in the UK, but not at midnight. The rule applies to individuals who have three or more UK ties.
Domicile - definition:
- Domicile refers to your natural home - the country to which you would return after going abroad.
Domicile of origin - definition:
- England and Wales take the father’s domicile (mother’s for illegitimate children/ children born after the death of the father).
- Scotland, child under 16 are domiciled in the country with which they are most closely connected at present.
- Prior to 1974, a woman would take her new husband’s domicile on marriage. Nowadays a wife’s domicile is independent of that of her husband.
Domicile of choice - key points:
Can be acquired by moving to a new country with the objective of permanently staying there. HMRC will take the following actions into account when assessing whether a new domicile is effective:
- Physically live in country of choice
- Express intention to remain in that country
- Buying house in new country and disposing of all property in country of origin
- Establishing a business or getting a job in new country
- Involvement in local community
- Getting on electoral role
- Acquiring citizenship or nationality
- Making locally valid will and burial arrangements in new country
- Having friends, family and business interests there
- Severing ties with friends, family and business interests in country of origin.
Individual will continue to be treated as UK domicile for at least three years after acquiring domicile of choice.
Deemed domicile - key points:
- Long term UK residents will be treated as deemed domicile for tax purposes if they have been UK resident for 15 out of 20 last tax years.
- If born in UK, have domicile of origin and become UK tax resident - after having acquired a domicile of choice outside the UK, will be deemed domicile.
- For IHT, only applies if UK resident in at least one of two last tax years.
- Once deemed domicile under 15/20 rule, will remain deemed domicile for income tax and CGT until 6 tax years after leaving UK
- For IHT it’s 4 consecutive tax years
The Remittance Basis - key points:
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