Domicile Changes

Fear not, there aren’t any new domicile changes for the UK taxation system just yet. This is just a reminder of the rules that were implemented from 6 April 2017 by HM Revenue and Customs (HMRC).

Before we get into the changes of the rules surrounding domicile, a quick recap.Domicile is a legal concept and in relation to the UK taxation system. The widest definition of a person’s domicile is their long term home.

There are 3 types of domicile that can be adopted:Domicile of Origin – at birth, so long as your parents are married, you take the domicile of your father. Should your parents be separated, you will then take the domicile of your mother (or the parent who is principally caring for you)

Domicile of Dependency – up to the age of 16, should your father change domicile, you will also change domicile.Domicile of Choice – over the age of 16, you are able to actively change your domicile to another country.

It is often difficult to change ones domicile as this often involves severing all ties with the original country and there has been significant tax cases involving individuals domicile.

When it comes to taxation in the UK, an individuals domicile only really comes into question if the resident is UK resident.

If you are not a UK resident for tax purposes, you will only be subject to UK tax on your UK sourced income.If you are a UK resident for tax, then your domicile needs to then be considered for the purpose of determining the amount of UK tax owed.

A UK resident, UK domiciled individual is assessed on a worldwide basis, regardless of whether the individual remits / brings the non-UK sourced income and gains to the UK.A UK resident, non-UK domiciled individual is assessed either as above or under the remittance basis.

This is where the individual is subject to UK tax on the UK sourced income and gains and any non-UK sourced income and gains that are remitted / brought to other UK – in essence, should no foreign money be brought to the UK, then it is possible that no UK tax is payable on this income/gains.

As such, this remittance basis of assessment is often highly advantageous to UK resident non-domiciled individuals.

However, with most rules in the UK, there is a but...in order to access this alternative way of assessment in the UK, it is possible that a remittance basis charge (RBC) needs to be paid.

This charge (starting at £30k) starts as soon as you become a UK resident for at least 7 of the previous 9 tax years.

Therefore, once you have reached this period of time as a resident in the UK, it is important to consider your tax status wisely to avoid overpaying either tax or the charge.

It is recommended that you seek specialist advice to ensure this is done correctly.The new rule (from 6 April 2017) was implemented to deter the beneficial tax treatment for those individuals who had become long term tax residents here in the UK.

Further to the RBC mentioned above, as soon as you become a UK resident of at least 15 of the last 20 complete tax years, you will come deemed UK domiciled.

The effect of this is that as soon as you cross this threshold, all your income and gains, regardless of location, will become subject to UK tax on the arising basis. This applies to income tax, capital gains tax and inheritance tax.

As such, it is hugely important to remember this rule when you come to prepare you upcoming 2017/18 self-assessment tax return which is now ready for submission.

Although you have until 31 January 2019 to file this, it is important to get this prepared and filed in good time and any tax payable paid on time too.

Should you need further assistance either with your residency and domicile queries or even how Wisteria could help you with your self-assessment tax returns, please do not hesitate to contact one of the specialists on 020 8429 9245.