Residence and Domicile Issues

In the last couple of years, the tax rules surrounding residency and domicile have been altered particularly with regards to income tax, meaning that you may be unknowingly taxable in the UK on overseas income.

If you are UK 'born and bred' then, unless you have taken action otherwise, you will be treated as being a UK resident and domiciled individual and taxable on all worldwide income, unless resident outside of the UK for that particular tax year, as well as having your entire estate assessable to Inheritance Tax upon your death.

For those readers who are non UK domiciled, or in other words were born outside of the UK, the rules are slightly more complex.

In short, if you are resident in the UK meaning you have been present for 183 or more midnights in any one tax year, or for more than 91 days on average per tax year in any four tax year period you would be treated as tax resident in the UK. This will generally mean that you are assessable on any income or gains arising in the UK during that tax year(s), together with any income or gains remitted to the UK from overseas within that tax year(s). This is known as the 'remittance basis'.

For those individuals who are resident using the above rules in any 7 out of 10 tax years, you will have the choice of continuing to use the remittance basis, or using the arising basis which means that you are taxable on any worldwide income within the UK tax year.

Generally speaking unless your overseas income is particularly large it is generally best to use the arising basis, once you have been tax resident for 7 years or more as to continue to use the remittance basis would incur a remittance basis charge of £30,000 per year in addition to any income tax payable on UK arising income/gains or on remittances to the UK.

However, whilst the above seems particularly prohibitive from a UK tax perspective, any monies earned overseas would generally receive 'double tax relief' in the UK for any tax payable overseas. For example, if under the arising basis, an individual has income in France of £10,000 which is taxed in France at the rate of (say) 20% and UK tax is payable at 40% then only the additional 20% tax would be payable in the UK.

In addition to the above Income Tax and Capital Gains Tax rules, should you be resident in the UK for more than 17 out of 20 years, your worldwide assets would also be treated as being assessable to UK Inheritance Tax upon your death

If you should have any queries regarding residence or domicile issues, please contact us.