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1 Minute Guide to ... Residence and Domicile
(October 2004)
Introduction
Residence and domicile status can have significant implications in terms of an individual's liability to UK tax. A high proportion of questions on TaxationWeb's Tax Tips Forum are concerned with residence and domicile related issues. This is not surprising, because it is a very complex area. Specialist advice will often be required. Here is a very brief introduction to the subject. For further information, visit the International Tax section of TaxationWeb.
10 Key Points
- Why is residence and domicile status important?
Liability to income tax and capital gains tax (CGT) generally depends on whether an individual is resident, ordinarily resident and domiciled in the UK. An individual is broadly liable to income tax on worldwide income if UK resident, or on UK income if non-UK resident.
- Residence
Residence in the UK is normally measured in terms of physical presence during a tax year. An individual is generally considered UK resident if present in the UK for 183 days or more. This can be a single continuous period, or spread over a number of visits during the tax year. However, by Inland Revenue concession a tax year can be split in certain circumstances (e.g. upon leaving the UK permanently, or arriving to live in the UK permanently), so that an individual is resident in the UK for part of a tax year and non-resident for the rest.
- Ordinary residence
Ordinary residence generally requires habitual residence in the UK. Someone can be resident without being ordinarily resident, and vice versa. An individual who comes to the UK regularly will be treated as ordinarily resident if for example visits average 91 days or more a year over four or more tax years. The date from which the individual is treated as ordinarily resident depends upon that person's intentions from the outset. For instance, if there is an intention to visit the UK regularly for at least four tax years, he may be treated as ordinarily resident from the time of arrival in the UK.
- Domicile
Domicile involves complex issues of law. An individual can be resident in more than one country at the same time, but can only have one domicile. A person is generally domiciled where his or her permanent home is situated. A ‘domicile of origin' is acquired at birth, normally from one's father. The domicile of a minor normally follows that of the person on whom he or she is legally dependant (a ‘domicile of dependency'). However, a ‘domicile of choice' can be acquired from age 16. This broadly involves leaving the current country of domicile to settle in another country, and requires strong proof of having moved to the other country permanently or indefinitely. Living in another country is not conclusive evidence of an intention to change domicile.
- What is ‘temporary residence' for income tax purposes?
An individual who visits the UK for a temporary purpose (i.e. with no intention to become resident or to remain for an extended period) is not regarded as UK resident unless he or she is in the UK for at least 183 days in a tax year, even if there is available living accommodation in the UK. However, he or she is not regarded as being in the UK for a temporary purpose if UK visits average 91 days or more per tax year, calculated over 4 years (in which case UK residence commences from the start of year 5).
- What is ‘temporary non-residence' for capital gains tax (CGT) purposes?
An individual can have ‘temporary non-residence' status in the UK for CGT purposes. Those who leave the UK and subsequently return are broadly liable to CGT on gains arising during their absence on assets owned prior to their departure if they were UK resident for at least 4 out of the last 7 tax years, and their period of non-residence is less than 5 tax years. However, this rule does not normally apply to gains from assets acquired while temporarily non-resident, subject to certain anti-avoidance rules.
- How does domicile status affect inheritance tax (IHT)?
An individual who is domiciled in the UK is liable to IHT on chargeable property on a worldwide basis. A non-UK domiciled individual is also liable to IHT, but only on chargeable property in the UK. There is a separate rule regarding domicile, which applies for IHT purposes only. An individual can be deemed domiciled in the UK for IHT purposes if he or she was UK domiciled at any time in the 3 years immediately preceding the time at which the question of domicile is to be decided, or alternatively UK resident for at least 17 out of the last 20 years ending with the tax year in which a chargeable event takes place.
- Personal allowances
An individual who is not resident in the UK may claim tax allowances if falling within certain permitted categories. Examples include Commonwealth citizens, European Economic Area nationals, residents of the Isle of Man or Channel Islands, and nationals and/or residents of a country with which the UK has a double taxation agreement allowing such a claim. A person who becomes or ceases to be UK resident during a tax year can claim full allowances and reliefs for the tax year of arrival and departure.
- Tax forms
Certain tax forms are associated with non-residence. Those leaving the UK and claiming to be no longer resident in the UK should complete form P85, giving details of the proposed stay abroad (or P85(S) on completion of a work assignment). An individual arriving in the UK to take up employment should complete form P86, to help establish his or her residence and ordinary residence status (and domicile status, if immediately relevant to the individual's UK tax liability). In addition, the self-assessment tax return has a supplementary non-residence page for completion by individuals claiming to be not resident, not ordinarily resident or not domiciled in the UK, and also requests information for double taxation relief purposes (e.g. in connection with claims to be dual resident in the UK and elsewhere). Form DOM1 is used to establish an individual's domicile status for the purposes of UK income tax and chargeable gains. The forms are available to be downloaded from the Inland Revenue's website:
Forms P86 and DOM1
Forms P85 and P86(S)
Self Assessment non-residence supplementary page 2003/04
- Booklet IR20
There is only a relatively small amount of tax legislation to assist in determining an individual's UK residence and ordinary residence status. The determination of status has therefore largely evolved through case law and Inland Revenue practice. The Revenue's views and approach in determining residence and ordinary residence issues is set out in Booklet IR20 ‘Residents and non-residents – liability to tax in the United Kingdom'.
Disclaimer
The content of these guides is based on tax legislation in operation at the time of publication, which may subsequently have changed. Whilst every care has been taken in its production, no responsibility can be accepted for any action undertaken or refrained from as a consequence of this material. This information is for general guidance only. Specific professional advice should always be obtained based on personal circumstances. TaxationWeb Limited accepts no responsibility whatsoever for any action undertaken or refrained from as a result of the information contained herein.