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On a weekly basis I get asked why someone is not considered domiciled in the UK if they are living there.  As this is an area of confusion for many and can have tax implications, I wanted to explain the difference between domicile and residence.

Domicile

Domicile relates to the country where a person has their permanent home or has a substantial connection with.   Whilst there is no exact definition, a person can only ever have one domicile at any point.  There are basically 3 types of domicile.

  1. Domicile of Origin

When you are born your will automatically be assigned your fathers domicile, unless your parents were unmarried, in which case your will be assigned your mothers domicile.  This domicile remains with you, throughout your life, unless you acquire one of the other 2 types below.

  1. Domicile of Dependency

Children below the age of 16 automatically obtain the domicile of the personal upon who their domicile is dependant (this is normally your father).   If that person changes their domicile, then the child’s will change too.     It should also be noted that women who married before 01 January 1974 took the domicile of her husband as a domicile of dependency.

  1. Domicile of Choice

Anyone over the age of 16 can change their domicile if they move to another country with the intention to remain there permanently.   Just moving to another country for work for a few years, does not fulfil this requirement, all factors relating to a persons life, along with evidence of intention would be used to determine whether or not a domicile of choice has been acquired or not.

Why is Domicile important?

For tax purposes, domicile determines a personal liability to Inheritance Tax (IHT).   So, a person that is domiciled in the UK, will be liable to UK IHT on their worldwide assets.  Whereas, a person that is not domiciled in the UK, will only be liable to UK IHT on their UK situated assets.

It should be noted that if someone has spent 17 out of the last 20 years in the UK, regardless of their domicile, they would still be liable for UK IHT on their worldwide assets.

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Residence

You will be considered a resident (for tax purposes) in the UK if you are present for 183 days of more per tax year.  Additionally, if you go and work abroad for more than 1 year, you must not be back in the UK for more than 91 days, on average, in any 365 day period, for the duration of your time abroad.

In order to determine if you were UK resident in a tax year, you need to look at the Statutory Residency Test (SRT).

Generally speaking, if you are resident in the UK then you are liable to income tax and capital gains tax on your worldwide income and gains (there are special rules to consider that may mean this is not the case, such as the remittance basis), and those who are non UK resident are just liable for UK tax on their UK sourced income.

If you have any further questions on this (or any other matters) please don’t hesitate to CONTACT US.

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