Domicile

Resident, Ordinarily Resident, Domiciled by this, that or the other?

Not very clear today...

Where you think you live and where you really live may not be one and the same, in the eyes of the tax authorities at least.

Two numbers - 91 and 183 - are important but not decisive. For tax purposes, a person may be treated as resident in the UK if the

• spend 183 days or more in the UK in any tax year

or

• are in the UK temporarily and spend at least 91 days in the UK

In addition, UK residence for tax purposes also applies to those who come to the UK intending permanent residence or to work here for an
extended period, or with no particular end date.

But day-counting is only one part of the equation. Other factors - personal, social, financial ties to the UK, for example - can also apply.

In February 2010, the Court of Appeal stoked the financial worries of millions of Britons who live abroad and think that, for tax purposes, they have moved abroad. If this ruling stands, many of them may not have severed their links to the UK sufficiently to become tax exiles.

After moving to the Seychelles in 1976, businessman Robert Gaines-Cooper spent fewer than 91 days per year in the UK. But the Court ruled that the 91-day standard did not by itself establish non-residency. If you still have ties to the UK, the tax authorities may decide that you are liable for tax.

"The judges ruled there were 'ample' grounds to rule that Mr Gaines-Cooper had in fact been 'resident and ordinarily resident in the UK' throughout his apparent exile," BBC News reported. Gaines-Cooper promptly appealed.

In October 2011, the UK Supreme Court ruled against Gaines-Cooper.

Clarification Coming!?

The Government will introduce a statutory definition of tax residence in an attempt to clarify the rules governing tax residence for individuals (businesses will not be included). In addition, HMRC is trialling an interactive online tool to enable individuals to self assess their residence status when the new statutory definition is introduced. The government conducted a consultation process between June and September 2011.

 

The Abc's of domicile and residence

What is the location of your permanent home? Where do you intend to be buried? Where do you bank, vote, join clubs, visit doctors and dentists?

Such questions can be used to help determine your domicile. But the answers to any one or two of those questions do not necessarily settle the issue.

Many people live permanently in one country and pay income tax in that country - and are nevertheless domiciled in another country. Some people are deemed domiciled for tax purposes in one country even though they may be domiciled by origin or choice in a different country. It is possible for a person to be resident in two countries and domiciled in a third.

If you are part of a couple and your spouse or civil partner is a 'non-dom' - domiciled elsewhere than the UK - a special inheritance-tax threshold may apply. In addition, domicile can limit a dependant's ability to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

There are three types of 'excepted estates' (no IHT is due, and an IHT account is not required). One of these privileged groups is 'foreign domiciliaries'.

Domicile can have a huge impact on one's tax and inheritance position.

The three, er, four types of domicile

origin Usually - but not always - place of birth. You have two British parents and were born in Bristol or Bath; voilà, you have English domicile. Your sister has the same parents but was born during a family holiday in Bordeaux; voilà, she is...English. Compris?

dependence Refers to children and the adult(s) on whom the child depends.

choice Where you intend to reside permanently. Along with intention, it helps to have many links to your chosen country in the form of bank accounts, club memberships and cemetery plot. Balancing this should be correspondingly few links - the fewer, the better - to your previous domicile.

deemed Regardless of your specific country of domicile, the tax man may determine that you are domiciled in England and Wales for inheritance-tax purposes. If you emigrated from England or Wales within the last three years, or lived there for 17 out of 20 years, you may be deemed domicile.

In our global mobile world, it is not necessarily easy or simple to add up the number of years resident in a country. Three months holiday in one country in one year, a temporary job assignment in another country in one or more other years, and the total can be 15, or 17 or 19 years out of 20.

Some well-travelled individuals have to list each year in question along with the exact number of days per year in the country - and even then, residency and domicile questions may persist.

From the HMRC's Mouth

"Residence, Domicile and the Remittance Basis" is the title of the brochure HMRC6.

HMRC6 is addressed specifically to individuals and not to, for example, trustees, companies and other forms of 'legal person.' This brochure also does not address inheritance tax. However, HMRC6 does refer readers to the Customer Guide to Inheritance Tax.

HMRC6 replaces IR20, which provided guidance up to 6 April 2009. IR20 is still available for information regarding tax affairs before 5 April 2009. The current edition of HMRC6 runs to 85 pages and was revised twice in 2010. The online version available on the HMRC website is up to date.