The way you are taxed in the UK will be affected by not only your Residency status, but also where you are domiciled.
What is domicile status?
Domicile is a legal concept and whilst an individual can be a resident in more than one country at the same time, they can only have one domicile at any one time.
An individual is domiciled in the country which they regard to hold their cultural and family roots, and where one has permanent habitual ties of a settled nature. This can come about in various different ways:
- Domicile of origin: This is acquired at birth and is usually the domicile of your father (or mother if you were born outside marriage). It may not be the country you were born in (but often is) and your domicile of origin is extremely hard to displace
- Domicile of choice: This may be acquired where you take identifiable and substantive steps to make your life somewhere else in the world. Habitual residence or citizenship in a particular country is not sufficient to demonstrate a change of domicile and you must be able to demonstrate permanent residence with settled intent. If you manage to do this and later abandon the country you have chosen, your domicile of origin will reassert itself until you acquire another domicile of choice, which can take a long time to do
- Domicile of dependence: Until you have the legal capacity to change your own domicile (at age 16 or more), it will follow that of the person with whom you are legally dependent. If the domicile of that person changes, you will automatically acquire the same domicile (a domicile of dependency), in place of your domicile of origin. Women married prior to 1 January 1974 automatically acquired the domicile of their husbands
- Deemed domicile: This is purely a UK tax concept and applies only in the UK. If you have been a tax resident in the UK for 15 out of the last 20 years, you will be deemed UK domiciled for UK tax purposes and treated as though you have a domicile status here. This will not affect your domicile status in legal terms, but you may have already acquired a domicile of choice here in the UK if you are here long enough to be deemed domicile
Since April 2017 there have been special rules for individuals who have a domicile of choice overseas but who were born in the UK. Where that is the case, spending as little as a tax year in the UK may be enough to be treated as UK domicile for certain tax purposes.
What is the impact of domicile?
Individuals who are UK tax residents and who are also treated as UK domiciled are subject to UK tax on their worldwide income and gains. The worldwide estates of individuals who are UK domiciled will be subject to UK Inheritance tax when they die. However, those who are not UK domiciled can opt to be taxed under a potentially more beneficial tax regime in the UK – for example, by claiming the remittance basis for income tax and capital gains tax purposes. Additionally, UK Inheritance tax is usually restricted to UK situs assets.
Importantly, there are various tax advantage structures that can be considered by those who are not UK domiciled, which are not available to anyone who is domiciled or deemed domiciled here. This is something that anyone who is about to become deemed domiciled should seek further advice on, before it it too late.
Depending on your circumstances, if you are not currently UK domiciled but you think you might become UK domiciled in future, it may be possible to take action now to protect your assets.
If you would like to discuss this further, please contact one of the Private Client tax team for further guidance.