Residency and domicile are important concepts for people trying to navigate their way through UK taxation. These are the terms that tell you how much tax you owe, and to which jurisdiction. Residency is more to do with your physical presence in the UK, and domicile is more to do with your long-term connections and intentions. In this blog, we unpack the details of these two important concepts, explaining what they are, why they are important, their key differences, and implications for taxpayers.
1. What is Residency in the UK?
How long you live in the UK will decide whether you have to pay UK taxes on your global income and capital gains. The UK uses the Statutory Residence Test (SRT) to determine whether an individual is a resident for a particular tax year.
Statutory Residence Test Key Criteria
The SRT is based on the following:
Automatic Tests
1. If you spend 183 days or more in the UK during the tax year you are automatically a UK resident.
2. You will also qualify as a resident if you have a home in the UK and have not spent any appreciable time at an equal home abroad.
3. Residency may be established by working in the UK for 365 continuous days, with at least 75% of those workdays in the UK.
Ties to the UK
You will be considered on the number of days spent in the country and your ties to the UK if you do not meet the automatic tests. These ties include:
1. Family residing in the UK.
2. Substantial work in the UK.
3. Accommodation ties.
If you spend more than 90 days in the UK in either of the two tax years before the one you are in.
The number of ties an individual has in a tax year is considered along with days spent in the UK in that tax year to determine residence status
Automatic Overseas Test: We can add regarding this one too.
2. What is Domicile in the UK?
Residency is a temporary status, and domicile is your long-term home and your intention to live permanently or indefinitely in a country. It often has a major effect on your tax responsibilities, in particular in relation to inheritance tax and offshore income.
Types of Domicile
Domicile of Origin: Typically based on your father’s domicile, this is acquired at birth.
Domicile of Dependency: For individuals under 16, the domicile matches that of the person on whom they depend.
Domicile of Choice: Moving to another country with the intention of making it your permanent home is how you can get yourself a new domicile.
It’s hard to change your citizenship and you should be able to prove that you abandoned your old one and have become tied to the new one.
Taxation of Domicile and Residency Status
Domicile and resident status determines your liability for the tax year:
Worldwide income and gains: The remittance basis is available to non-domiciled individuals and only applies to tax on UK sourced income and gains and foreign income brought into the UK.
Inheritance Tax (IHT): UK domiciled people are liable for IHT on worldwide assets, but non domiciled people are only liable for UK based assets.
3. Residency vs. Domicile: Key Differences
Residency is based principally on your physical presence and UK ties in a tax year; domicile is about your long-term home and intentions.
● Tax on annual income and gains is affected by residency; tax on offshore assets and inheritance is determined by both your residency and domicile status.
● It’s possible to change your residency status annually, but you need to change your domicile with a lot of evidence and intent.
For example, someone who works in the UK for 200 days a year but who has a permanent home abroad is probably a UK resident but not domiciled.
4. Residency and Domicile and their Tax Implications
Residency and domicile are both important things to know for effective tax planning.
Income Tax and Capital Gains
UK Residents
● Subject to worldwide income and gains taxation.
Non-UK Residents
● Income from UK employment or rental income, taxed only on UK sourced income.
● UK property sales gains are taxed, but other gains may not be.
Non-Domiciled Residents
● They can choose to claim remittance basis of tax, meaning they only pay tax on UK income and gains plus foreign income brought into the UK. But from 5th of April 2025, this provision has changed and the remittance basis has been abolished by HMRC
Inheritance Tax (IHT)
● All UK domiciled individuals are subject to IHT on worldwide assets.
● IHT is only paid on UK based assets by non-domiciled individuals.
● If you have lived in the UK for 15 out of the past 20 tax years, the deemed domicile rule applies.
5. Common Scenarios and Challenges
Residency and domicile can be difficult for taxpayers to sort out.
Scenario 1: Expats Moving to the UK
For those expats moving for work, they need to decide whether they are residents for tax purposes. This means that they may need to give thought to double residency rules under double taxation agreements (DTAs).
Scenario 2: Long-Term Non-Doms in the UK
Non domiciled people who have lived in the UK for 15 years or more are deemed domiciled and are liable for IHT on all worldwide assets and cease to be entitled to the remittance basis.
Scenario 3: Offshore Assets of UK Resident
Residents with offshore income must report correctly and can be fined if they do not follow UK tax laws.
6. How a Tax Accountant Can Help
It is not easy to know and navigate the rules of residency and domicile, and there is no getting around the fact that it is even more difficult if your affairs are complex.
Statutory Residence Test Analysis: The SRT can help an accountant for tax returns determine your residency status and help you remain compliant.
Tax Planning for Non-Doms: Advice is available to non-domiciled individuals on the remittance basis and planning for deemed domicile status.
Inheritance Tax Planning: For those subject to deemed domicile rules, estate structuring can be assisted by tax return accountants to help minimise IHT liabilities.
Double Taxation Relief: As for people who are taxed in various countries, accountants can steer away double taxation dangers with the help of DTAs.
7. Taxpayers Key Considerations
Record Keeping
It’s important to have accurate records of your ties, travel, and income. Claims about residency and domicile status during HMRC inquiries are supported by these documents.
Double Taxation Agreements
DTAs between the UK and other countries mean you do not pay tax twice on the same income. For expatriates and people with international business interests, these agreements are important.
Seek Professional Advice
Residency and domicile tax laws are complicated, and you can wind up in a bad spot if you don’t understand them. Using an expert will ensure compliance while taking advantage of tax efficiency.
Conclusion
Where you live and where you spend most of your time affects your UK tax obligations. Such concepts are vital, especially for taxpayers who have international connections, or who hold assets offshore. If you are trying to navigate the Statutory Residence Test, plan for inheritance tax, or deal with the complexities associated with non-domiciled status, professional tax accountants advice really helps.
We provide assistance to UK taxpayers with residency and domicile rules, to be compliant and to minimise tax liabilities. We are here for you, so contact us today in order to learn how we can support your financial needs.