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Ex-Pat and overseas issues

Your residence and domicile status can have a significant effect on your liability to UK tax. It is an extremely complex area which is not helped by the UK tax laws as there is no complete statutory definition of residence or domicile. Instead there is a complex mix of statute, case-law and Her Majesty’s Revenue & Customs practice with the last probably being the most influential in most cases.

HMRC have for a number of years been looking at ways to change the law on residence and domicile but so far to date there has been no changes. In fact the consultation process appears to have ground to a halt. Probably due to political and economic pressures.

The UK does remain a tax haven for an individual who is UK-resident but not UK-domiciled.

It is important to always establish whether you are resident, ordinarily resident and domicile in the UK. If you are then you are taxed in the UK on your worldwide income and gains. If you are not resident here then you will be taxed on only your UK income.

Basically the definitions are as follows:

Residence: This is measured in physical presence in the UK during a tax year. If you are here 183 days or more then you are resident. This can be a single continuous period or spread over a number of visits to the UK. By concession the tax year can be split in, say a situation, where you come to live in the UK or leave permanently. You will then be regarded as resident from arrival or non resident from the time you leave.

Ordinary Residence: This requires habitual residence in the UK. You can be resident without being ordinarily resident and vice versa. You will be regarded as ordinarily resident if you come to the UK on an average of 91 days or more over four or more tax years. The date from when you will be regarded as ordinary resident depends on your intentions at the start of your arrival.

Domicile: This is another difficult issue to decide in some situations. You can only have one domicile although you can be resident in more than one country at the same time. You are normally domiciled where you have a permanent home.

There are three types of domicile

a domicile of origin is acquired at birth normally from your father

a domicile of choice can be acquired from age 16. This is notoriously difficult to acquire and broadly involves leaving your current country of domicile and settling in another country. You would need to show that you have moved there permanently or indefinitely.

a domicile of dependency is where a child takes the domicile of the person on whom he or she is dependent.

One of the great advantages of being treated as non domiciled in the UK is where you have overseas income or gains. These will not be taxed in the UK unless these are remitted to the UK, so if you leave these offshore they will not be liable to UK tax.

Inheritance Tax & Domicile

If you are domiciled in the UK then you are liable to Inheritance Tax on your worldwide assets. If you are not domiciled here then you are liable on only the assts held in the UK.

There is a separate rule for IHT purposes only in that you can be deemed domicile in the UK for IHT purposes if you were domiciled at any time in the 3 years immediately preceding the time at which the matter of domicile is to be decided, or alternatively you have been resident in the UK for at least 17 out of the last 20 years ending with the tax year in which a chargeable event takes place.

Personal Tax Allowances

It is possible to claim UK tax allowances even if you are not resident here so long as  you fall within certain categories. Examples include Commonwealth citizens, European Economic Area nationals, residents of the Isle of Man or Channel Islands and nationals/residents of a country with which the UK has a double taxation agreement.

In the year of arrival or departure you can claim full allowances and reliefs.

Sometimes it is not beneficial for a non resident individual to claim personal tax allowances. It all depends on what the sources of income are-and the split between excluded and non excluded income. Two calculations are required and in these situations it is advisable to seek professional advice.

This information is for general guidance only. You should always seek professional advice based on your own personal circumstances.