RESIDENCE AND DOMICILE

As specialist motorsport accountants, Harris & Co are often asked to advise on the international aspects of motorsport.

When considering the international dimension to motorsport, the concepts of residence and domicile are key. These are complex areas of tax law and each individual set of circumstances has to be taken on its own particular facts. However, it is possible to give some generic guidance.

Why are the concepts of residence and domicile important?

Well, generally residence determines your liability to tax on your income. Domicile tends to be relevant when determining your liability to capital taxes such as inheritance tax or capital gains tax.

DOMICILE

Domicile is a complex concept of law. Broadly speaking, you are domiciled in the country where you have your permanent home. Every person has one domicile at any given time.

Domicile of origin

This is the domicile that you acquire at birth. Normally, this would be the domicile of your father (see domicile of dependence). It would be the country in which your father was domiciled and not the country in which you were born.

It is possible to choose to change your domicile.

Domicile of choice

From the age of 16 you can acquire a domicile of choice to replace your domicile of origin. To do this you must settle in another country with the intention to remain permanently or indefinitely.

HMRC will consider the factors such as the following when assessing your domicile of choice:

Your intentions

Your permanent residence

Your business interests

Your social and family interests

Your ownership of property

Your Will

Deemed domicile

Another important concept is that of deemed domicile. Even if you are not domiciled in the UK, HMRC will treat you as domiciled in the UK for inheritance tax (“IHT”) if at the date of your death:

1. You were domiciled in the UK within the three years immediately before death, or
2. You were resident in the UK for income tax purposes for at least 17 out of the last 20 years ending with the year in which you died.

Domicile and liability to IHT

If you are domiciled or deemed domiciled in the UK, then IHT applies to your worldwide assets.

If you are not domiciled or deemed domiciled in the UK, then IHT applies only to your UK assets.

RESIDENCE

Your UK residence status affects whether you need to pay tax in the UK on your foreign income.

Non-residents only pay tax on their UK income. They don’t pay UK tax on their foreign income.

Residents normally pay UK tax on all their income, whether it’s from the UK or abroad. But there are special rules for UK residents whose permanent home (domicile) is abroad.

Work out your residence status

Whether you’re UK resident usually depends on how many days you spend in the UK in the tax year (6 April to 5 April the following year).

You’re automatically resident if either:

1. you spent 183 or more days in the UK in the tax year
2. your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year

You’re automatically non-resident if either:

1. you spent less than 16 days in the UK (or 46 days if you haven’t been classed as UK resident for the 3 previous tax years)
2. you work abroad full-time (averaging at least 35 hours a week) and spent less than 91 days in the UK, of which less than 31 days were spent working

Your residence status when you move

When you move in or out of the UK, the tax year is usually split into 2 - a non-resident part and a resident part. This means you only pay UK tax on foreign income based on the time you were living here. This is called ‘split-year treatment’.

Residence and capital gains

You work out your residence status for capital gains (eg when you sell shares or a second home) the same way as you do for income.

UK residents have to pay tax on their UK and foreign gains. Non-residents have to pay tax on income, but only pay Capital Gains Tax either:

1. on UK residential property
2. if they return to the UK

'Non-domiciled' residents

UK residents who have their permanent home (‘domicile’) outside the UK may not have to pay UK tax on foreign income depending on their income.

If your income is £2,000 or more

You must report foreign income or gains of £2,000 or more, or any money that you bring to the UK, in a Self Assessment tax return.

You can either:

1. pay UK tax on them - you may able to claim it back
2. claim the ‘remittance basis’

Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you:

1. lose tax-free allowances for Income Tax and Capital Gains Tax (some ‘dual residents’ may keep them)
2. pay an annual charge of £30,000 if you’ve been resident of the UK for at least 7 of the previous 9 tax years (this rises to £50,000 once you’ve been here 12 of the previous 14 years)