The taxation system in the UK is highly complicated with years and years of rules and regulations and case law shaping the current tax environment. As such it is often highly advised to seek professional guidance to ensure that not only are you compliant with the law, but you pay the correct amount of tax within the UK.
One concept which we come across that is highly confusing is that of domicile. Many people believe this to mean the same as residence. However these individuals could not be more wrong as these 2 concepts (from a UK taxation principal) differ hugely.
Here we will look at the basics on domicile as well as a few of the key changes in recent times you need to be aware of.
What is domicile?
This is a common law concept and means that every individual will have a domicile in a specific legal jurisdiction. In a nutshell, domicile is seen as where your ‘long term home’ is to be.
Under common law, there are 3 types of domicile:
- Domicile of origin – acquired at birth and is that of your father (if married)
- Domicile of dependency – up to the age of 16, if the domicile of the person who you are dependent on changes, then your domicile changes
- Domicile of choice – where an individual takes actions to actively change their domicile to a new jurisdiction where they intend to reside permanently or indefinitely
Different Income tax and Capital Gains Tax (CGT) treatment for non-domiciles?
A non-UK domiciled individual has the option to be assessed to UK tax under the arising or remittance basis.
Arising basis – where the individual is taxed on their worldwide income and gains.
*Remittance basis – where the individual is taxed on their UK income and gains as well as foreign income and gains that are remitted to the UK.
*In order to use this, there is a remittance basis charge that needs to be paid should you become a long term resident (i.e. more than 7 complete tax years). This charge typically starts from £30,000 per tax year.
What about IHT
As a non-UK domiciled individual, you only pay UK Inheritance Tax on UK property – therefore your non-UK assets are excluded from the charge.
If you become a long term resident (i.e. deemed domicile) then your non-UK assets fall within the scope of UK IHT.
Previously the rule was ‘if you are UK Resident for at least 17 of the previous 20 tax years, you will be deemed UK domicile’.
However since April 2015, this rule was adjusted and meant that if you were UK resident for 15 of the last 20 years, then you would be deemed UK domicile.
As a deemed UK domicile individual, this means your worldwide assets are caught by UK IHT (
note – the rules also changed recently to mean that if you are deemed domicile, you lose the ability to claim the remittance basis as highlighted in (2)).
It is always recommended to seek professional guidance to ensure your tax affairs are up to date and in order. Therefore should you need to speak with taxation specialist, then reach out to one of Wisteria’s friendly tax advisers on 020 8429 9245 or email
[email protected].