UK Resident for tax, domiciled status and remittance basis

Introduction

Determining UK residency for tax purposes and domiciled status involves considering various factors such as the number of days spent in the UK, ties to the UK (e.g. employment, property, family), and the intention to reside in the UK permanently or indefinitely.

For tax purposes, an individual is considered a UK resident if they spend 183 days or more in the UK in a tax year (6 April to 5 April), or if they have a permanent home in the UK and visit the UK.

Domiciled status is more complex, as it depends on where an individual considers their permanent home to be. An individual is considered UK domiciled for tax purposes if they were born in the UK, or if they have made the UK their permanent home. If an individual is not UK domiciled, they may still be considered UK resident for tax purposes.

To determine UK residency for tax purposes, the following rules apply:

 

• • The 183-day rule: An individual is considered a UK resident if they spend 183 days or more in the UK in a tax year (6 April to 5 April).

 

• • The automatic overseas test: An individual is considered a UK resident if they have a home in the UK and visit the UK for more than 16 days in a tax year and fewer than 46 days in the following tax year.

 

• • The sufficient ties test: An individual is considered a UK resident if they have a home in the UK and visit the UK for fewer than 16 days in a tax year but have sufficient ties to the UK such as employment, family, or business connections.
    
    

To determine UK domiciled status for tax purposes, the following rules apply:

 

• • Born in the UK: An individual is considered UK domiciled if they were born in the UK and have not left permanently.

 

• • Long-term residency: An individual is considered UK domiciled if they have made the UK their permanent home for a significant period of time, usually considered to be at least three years.

 

• • Intention to reside permanently: An individual is considered UK domiciled if they intend to reside in the UK permanently or indefinitely.
    
    

Note: These rules are subject to interpretation and can be complex. It is recommended to seek professional advice or consult with HM Revenue & Customs (HMRC) for a definitive determination of residency and domiciled status for tax purposes in the UK.

Worked example to establish UK residency and domiciled status for tax purposes:

Let’s say Nick is a US citizen who works as a consultant and travels frequently. In the tax year 2022-2023 (6 April 2022 to 5 April 2023), Nick spent a total of 200 days in the UK. He has a rental property in the UK that he uses as his home when he is in the country. He also has a wife and children who reside in the US.

Residency for tax purposes:

The 183-day rule: Nick has spent 200 days in the UK in the tax year 2022-2023, which is more than the required 183 days, so he is considered a UK resident for tax purposes.

Domiciled status for tax purposes:

 

• • Born in the US: Nick was born in the US and has not lived in the UK for a significant period of time, so he is not considered UK domiciled.

 

• • Long-term residency: Nick has not made the UK his permanent home for a significant period of time, so he is not considered UK domiciled.

 

• • Intention to reside permanently: Nick visits the UK frequently for work, but his wife and children reside in the US and he does not have any intention to permanently reside in the UK, so he is not considered UK domiciled.
    
    

Based on the above analysis, Nick is considered a UK resident for tax purposes but not UK domiciled. This means that he may be subject to UK tax on his UK income and gains, but may not be subject to UK tax on his worldwide income and gains.

Disclaimer: This is a simplified example for illustration purposes only and may not reflect the full complexity of UK tax laws. It is always recommended to seek professional tax advice or consult with HM Revenue & Customs (HMRC) for a definitive determination of residency and domiciled status for tax purposes in the UK.

Tax consequences of being non-domiciled

The tax consequences of not being considered domiciled in the UK depend on the individual’s specific circumstances and the tax laws in place at the time. However, in general, individuals who are not considered UK domiciled but are UK resident for tax purposes may still be subject to UK tax on their UK income and gains, but may not be subject to UK tax on their worldwide income and gains.

For example, if an individual is not UK domiciled but receives income from UK sources, such as rental income from a UK property, they would be subject to UK tax on that income. However, if the same individual receives foreign income, such as investment income from a foreign bank account, they would not be subject to UK tax on that income.

What is remittance basis and do I qualify?

The remittance basis is a tax treatment for non-UK domiciled individuals in the UK. It allows these individuals to only pay UK tax on their foreign income and gains if and when they bring (or “remit”) the funds into the UK.

For individuals who are UK resident for tax purposes but not UK domiciled, the remittance basis can be a useful way to minimise their UK tax liability. However, it is subject to certain conditions and restrictions, such as an annual charge for individuals who have been UK resident for more than 7 out of the previous 9 tax years.

Here is a worked example of the remittance basis for tax in the UK:

Let’s say Jane is a French citizen who has been living and working in the UK for the past 10 years. She is UK resident for tax purposes but not UK domiciled. Jane has a bank account in France with £100,000 of foreign income and gains.

Under the remittance basis, Jane does not need to pay UK tax on her £100,000 of foreign income and gains as long as she does not bring the funds into the UK. If she decides to transfer £50,000 of the funds into her UK bank account, she would be considered to have remitted the funds and would be subject to UK tax on the £50,000.

However, as Jane has been UK resident for more than 7 out of the previous 9 tax years, she would also be subject to an annual charge, which is currently £30,000. This means that even if she does not remit any of her foreign income and gains, she would still be subject to a £30,000 charge.

It is important to note that the above example is for illustration purposes only and may not reflect the full complexity of UK tax laws. The specific tax treatment for an individual under the remittance basis may vary depending on their specific circumstances and the tax laws in place at the time. It is always recommended to seek professional tax advice or consult with HM Revenue & Customs (HMRC) for a definitive determination of the appropriate tax treatment.

Contact our team at Finanche and we will help you determine your UK tax status and what option is the most tax optimum for you.