Why is residency & domicile important?
Tax is payable to HM Revenue & Customs (HMRC) by those who are resident and/or domiciled in the UK. Determining the correct residency status of an individual, trust or business is therefore key to ensuring tax compliance.
If the UK is where you were born and have always lived, residency and domicile does not require any further consideration. For the internationally mobile business person though, matters may not be so clear cut.
How are residency & domicile determined?
A taxpayer’s residency is determined by reference to their continuing connections with the UK. To prove non residency an individual must sever or significantly loosen all such connections.
A taxpayer can be resident in more than one tax jurisdiction at the same time.
An individual’s domicile is determined by reference to the country of origin of that person’s father. Where the parents are not married at the time of the birth, domicile of the mother is taken. A taxpayer has a “domicile of origin” which can be surrendered to a “domicile of choice”.
What can go wrong?
People who are resident in the UK but who are not ordinarily resident and/or not domiciled in the UK are entitled to claim the Remittance Basis of taxation.
Individuals who are taxed on a remittance basis will:
- be taxed on all income and gains arising in the UK
- only be taxed on foreign income and gains if they are brought into the UK
- not be taxed on foreign income and gains that remain outside the UK
If you incorrectly claim to be non resident and/or non domiciled, you will not be paying all the tax that you owe to HMRC.
From time to time, HMRC will challenge those who claim to be either non resident and/or non domiciled. If they disprove your claim, you will be required to pay all taxes due plus interest and penalties.
How Haines Watts can help
Haines Watts will advise you as to whether your residency and/or domicile is a factor in achieving full tax compliance for the past or future and for any associated offshore tax structures with which you are connected.
We can defend your position where appropriate, or we can advise you on the alternative ways of correcting matters by making a Disclosure.
We can also advise you on how to organise your UK tax affairs in order to suit your current or future needs whilst being fully UK tax compliant.
If you wish to discuss this or any other matter with a member of the team, please contact us.