What do I need to know?
If you are domiciled and a resident in the UK, then you will have to report all of your income and capital gains tax on your tax return.
Your domicile is defined by where you consider your permanent home to be.
What is the difference between domicile and non-domicile?
Domicile will determine whether you are liable for income tax, capital gains tax and inheritance tax in the UK.
If you are a non-domicile resident, then your permanent home will be outside of the UK.
Your domicile is acquired at birth and is usually from your father. Once you are 16 you can change your domicile, but it is difficult to prove to HMRC.
Should I be a non-domiciled taxpayer?
If you are a non-domiciled taxpayer, then you may not have to pay UK tax on income or gains that arise from outside of the UK.
You can also choose whether you want to be taxed on the actual basis or remittance basis.
If you choose the actual basis you will be taxed on your income and gains like a UK-domiciled and resident taxpayer.
If you choose the remittance basis you will be taxed on your UK earnings and gains.
You should know that you will not be taxed on any income or gains arising outside of the UK unless you bring that money into the UK.
If you keep all of your foreign wealth outside of the UK, then you will only get taxed on the remittance basis.
What does this mean?
You should be aware that to be able to have the remittance status as a non-domicile resident, then you will have to pay £30,000 a year if you have lived in the UK for 7 out of 9 years.
If you have lived in the UK for 12 out of the last 14 years, you will have to pay £60,000.
How do I become a UK tax resident?
There is a statutory residence test that determines an individual’s UK residence status.
The test consists of four components:
- Automatic UK test
- Automatic overseas test
- Sufficient ties test
- How much time you have spent in the UK in a tax year
If you do not meet the automatic overseas test but meet the automatic UK tests or the sufficient ties test, then you will be classed as a UK resident.
You will be considered as a non-UK resident if you meet the automatic overseas test.
Alternatively, if you spend more than 183 days in the UK in a tax year, you can be classed as a UK resident.
Double taxation treaties
If you are a tax resident in more than one country at the same time, then you will be subject to tax on the same income and gains in more than one country.
If this is the case, then you will not have to report the income or gains on the tax returns in both countries.
Most nations already have treaties in place to set out which country should tax you on your income.
If a treaty does not exist and you are required to pay tax in both countries, the UK will allow you to credit the foreign tax paid on that the income against the tax due in the UK on the same income.
UK-Domiciled – Non-UK residents
If you live or work abroad but have a residential property in the UK that you rent out, you will be taxed on any profits that are made, regardless of your tax residence status.
If you choose to elect yourself as a non-resident landlord with HMRC, then the rent that is received from the property will not have withholding tax deducted as the income will be reported through a UK self-assessment tax return.
You should consider the consequences of a non-domiciled or domiciled residency status will have on your tax bill.
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