Domicile status – clarifying rules for tax purposes

If you were born abroad then there are some tax rules that might apply to you if you have foreign (non UK) income or gains. In this blog, we look at how to determine your domicile status and the tax that you might need to pay.

If you’d like to chat to an adviser at Wow to ensure you’re paying the correct amount of tax, please get in touch – we’re here to help. Here’s some more information:

Domicile is a concept of common law and there is no statutory test to determine a person’s domicile status. It is a concept of “home is where the heart is.” Each individual has only one domicile and there are three different types:

Domicile of origin

• You start with a domicile of origin which you inherit from your father when you are born (or your mother, if your parents weren’t married)

Domicile of dependence

• If your father changes his domicile when you are under 16 then your domicile changes too

Domicile of choice

• At 16 you are deemed capable of establishing your own domicile of choice
• This is done by severing the majority of your ties with your country of domicile and establishing a new domicile in a different country
• When considering domicile, HMRC will look at business interests, intentions, permanent residence, social and family interests, property ownership and where any will was written
• Husband and wives can have different domiciles

Tax Position

• If you are non domiciled in the UK you can choose whether your foreign income and gains are taxed on the arising or remittance basis

The remittance basis:

• Foreign income is taxable in the UK if it is brought here
• Automatically applies if unremitted foreign income is less than £2,000
• No charge if you have been tax resident in the UK for less than 7 years
• Tax resident in the UK for 7 out of the last 9 tax years charge for remittance basis to apply £30,000
• Tax resident for 12 out of last 14 tax years charge for remittance basis to apply £60,000
• Tax resident for at least 17 out of last 20 years charge for remittance basis to apply £90,000
• Individuals with a lot of foreign income can pay the remittance charge and will not pay UK tax on their foreign income and gains if the income and gains remain outside the UK

New rules for domicile from April 2017

• Once an individual has been resident in the UK for 15 out of the past 20 years they will be deemed UK domiciled and charged UK tax on worldwide income
• Once you are deemed UK domiciled you can no longer choose the remittance basis
• If you want to re-start your tax residence clock you need to be non resident in the UK for 6 years
• An individual will also be deemed domiciled in the UK for inheritance tax purposes once they have been resident in the UK for 15 out of 20 years. This means that if you die in the UK, you will be charged UK inheritance tax on worldwide income
• If you were born in the UK to a UK domiciled parent and moved when you were a child, you could be deemed domiciled in the UK on your return

How are you taxed?

• If you are resident and domiciled in the UK you are taxed on worldwide income in the UK
• If you are resident in the UK but not domiciled here then you are taxed on UK source income in the UK and, broadly speaking, on foreign income if you bring it to the UK
• If you are non resident in the UK then you are taxed on UK source income only

How Wow can help

If you would like any more information on residence and domicile status and how it may affect your tax position, please contact info@thewowcompany.com