Residency or Domicile tax status
In the UK there are two basic residency types, i.e. ordinary and domicile residency.
Hammersmith Chartered Accountants has the experience and expertise to guide you through the maze that taxation can be. You need a deep understanding of the difference between residence and domicile. Read on, to discover how these apparent simple aspects of your life can mean a major shift in your taxation obligations in the UK.
HMRC Extensive Powers
Whether you are running a business, employed or engaged in both, it is important to remember that the taxation authorities in the UK have extensive powers to impose a fine on you if you fail to comply and honour your taxation obligations. The fines vary but the fact is that taxation fines can grind you to a halt. Hammersmith Chartered Accountants knows these possibilities and would like to partner with you and make your life and business in the UK a smooth flow. Moreover, you will fall into trouble if you fail to properly declare all that you earn for tax under self-assessment.
Non-Domicile Tax Status
There has been a lot of controversy in recent years surrounding individuals usually wealthy who claim non-domicile tax status for income tax. Non-Domicile tax status is where an individual is a resident for tax purposes and is considered to be so under UK law but is domiciled in another country and where their permanent home is. This “arrangement” can have financial rewards in respect of tax savings for the don-domicile individual and HMRC have been seen to be challenging several cases through the courts.
Hammersmith Chartered Accountants offers a comprehensive set of services guided by the in- depth knowledge and understanding of dynamics in taxation. We aim at making you pay as little as possible. In other words, we promise to help you only pay what you ought to pay, and that is the minimum that the tax authorities require of you.
Why Domicile and Residence are Critical to Your Tax
To begin with, issues to do with domiciliary and residence affect taxation directly. The domicile and residency statuses say it all. Here are the reasons why, and how domicile and residency affect your taxation in the UK. In particular, the concept of tax residence has to do with how long a tax regime is meant to apply to a given individual. It is designed for the short term. In other words, it is meant to cater to your taxation issues for the short period you have indicated to live and operate in the UK. Tax residence is computed on yearly basis and will change with your change of residence.
Domicile, on the other hand, is a long term taxation plan. Domicile deals with your permanent place of residence as declared by you. It is possible and allowed to maintain an overseas domicile, even though you live in the UK. In fact, changing your domicile may be viewed as a rather unusual move.
Your UK income
You also need to know that irrespective of your residence or the status of your domicile, all income earned by you in the UK is taxed by the UK authorities and sent to the exchequer accounts. The status of your domicile and residence are critical in determining how much tax you are liable to if you earn income that may be treated as foreign. If your residence and domicile statuses indicate that you belong to the UK, it will automatically mean that you are liable to taxation from all your ventures locally and abroad. Usually, a greater number of people born in the UK and have spent all or most of their time here, have their resident and domicile statuses reflecting the UK.
Short Term Residents
There is a difference if you have only visited the UK and intend to stay for a short period. If your visit will take six months, at the minimum, and you have no intention of settling in the UK for a long time or permanently, you will be given a domicile that is non-UK. This group is one that has no intention of resettling in the UK, and indeed retains ties with the home country. Another scenario applies to someone who visits the UK but has no intention of staying for long. In such a case, you are not under any obligation to be a resident of whatever type. By non-resident, we mean that you are not a tax resident. Thus, whatever incomes or gains you make are completely out of the jurisdiction of the UK tax authorities. In the case of your being a resident but not domiciled here, there are rules that apply. The rules may be put to use in taxing your income and gains that you make overseas. It should not be lost on you that the rules may even exempt you from taxation. They may also imply that you pay a reduced amount of tax compared to those domiciled in the UK, and have lived in the UK for longer. The aspect of domiciling only applies to your taxes if you are a UK tax resident. In other words, if you are not a tax resident, then your foreign income is beyond the scope of taxation by the UK tax
authorities. Thus, rules of remittance do not apply.
The General Rule
Other tax-related implications are that if you are not a tax resident, then you are also exempted from capital gains tax. The exemption is given even on assets located on UK soil, or even in UK air, for that matter. However, if such assets are made use of for purposes of trade, then it will introduce a new dynamic in the application of the rules. You may be required to pay some form of tax. The key word here is may, because there are several exceptions to this situation.
In a scenario where you are liable to UK tax but you have honoured your tax obligations in another country, on the same items, the double taxation concessions can assist you to avoid paying tax for the second time. The same agreements can also be applied to help you avoid paying twice if the income you earn in the UK is taxed in your country of origin, and if you are considered a tax resident in such a country. If there is no agreement on double taxation, there are still avenues through which you can get tax relief under the UK tax law.
Know your Resident Status
Our experts at Hammersmith Chartered Accountants advise that you need to always know whether you are a UK tax resident whenever you are in the UK because the status affects how much tax you are liable to pay. In the spirit of helping you enjoy your stay and run your activities in the UK without undue duress, we seek to always have you informed of the latest tax implications. Your residency status will affect how you will be taxed and also how you are entitled to the tax allowances within the UK tax jurisdiction. Indeed, you need to know whether you are also entitled to personal allowances. It is important to note that such scenarios do not ordinarily arise when you are only meant to stay in the UK for a limited duration, i.e. for only a portion of the tax year. Note that you may be eligible to claim a tax refund if you have not been given your personal allowance from the employment income taxes, only if you are only partially taxable in the UK for the tax years of departing and arriving.
It is important to note that the UK treats migrants without any foreign gains or income, and are entitled to personal allowances, the same way it does, those who have lived in the UK for a long time. Hammersmith Chartered Accountants understands that tax law may present a notable challenge to individuals and businesses. Therefore, we are always prepared to take you through the tax channel and release you when you feel helped and comfortable. If you plan to visit the UK, whether for the short term or otherwise, be sure to talk to Hammersmith Chartered Accountants before you take your flight. If you are already here, you will still find our professional advice handy, after, all, professional advising is our specialty