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UK DOMICILE RULES VS. NON-DOMICILE

Non Domiciled Status Expats

The UK government has stated that HMRC will be scrutinizing British residents who purport to live overseas extremely closely. The instance of Mr. Gaines-Cooper exposed the fact that HMRC closely examines people to determine where they have focused their lives. In one instance, Mr. Gaines-Cooper claimed to be visiting his family in Britain while residing in the Seychelles.

He had a wife and a son who lived in the UK, so HMRC had a different perspective. He also possessed a permanent residence that he could use whenever he wanted. Even a bank account and a phone contract were in his possession. The motion that he was actually residing in the UK and traveling to Seychelles was upheld by the high court.

What is meant by domicile?

If you apply this way of thinking to your situation as a British expat, it might be a good idea to consider your genuine connections to the UK. Do you keep money in that bank? Do you own a place that you may visit whenever you want? The question: ‘Where is the center of your life?’ is crucial.

According to what has been revealed so far, HMRC is taking into account a number of criteria that they previously seemed to have overlooked. It used to be common knowledge that if you worked abroad and spent less than 91 days on average per year in the UK, you were probably relatively safe in assuming that you weren’t deemed a resident for tax purposes during those years. These days, this isn’t always the case.

Where do you actually reside, you could ask? Are you merely a visitor from the UK? Do you now reside outside of the UK, in your new country of residence? What actual connections do you have to the UK? A company, bank accounts, housing that is only available to you, contracts for mobile phones, club memberships, your own car parked in the garage, or other connections of the same nature?

Taxes for people who don’t live in the UK.

UK inheritance tax does not apply to non-UK assets. Non-UK income and gains are not subject to UK income and gains tax unless and until they are ‘remitted’ to the UK, whether by direct or indirect entry. Real estate in the UK is subject to specific capital gains tax requirements. Similar to this, HMRC is closely scrutinizing people’s domiciles to see if they should be subject to inheritance tax (IHT). If you have a UK domicile, your estate will be subject to IHT on all of your assets, regardless of where they are located. ‘Domicile’ is complicated, especially as HMRC often won’t make a decision on an individual assessment until after you have passed away.

Do I reside in the UK?

You almost likely have a UK domicile if you were born there and your father was a resident of that country. Your estate will be subject to IHT if this is the case. Given that many expats plan to live in another country for the rest of their lives, they might choose to change their domicile to the one in which they are now residing.

How can I stop having a UK domicile?

You would need to prove that all links to the UK have been severed and that you intend to move to a different country in order to obtain a domicile of choice. Although it appears to be straightforward, this is not. You will have to give up all of your memberships, sell any investments you have, and limit your annual UK visits to 183 days. Establishing that you have, in fact, left the UK and that you have, in fact, relocated to another location is complicated. Having real estate in your new desired nation of residence, which is not the UK, may also be advantageous to you.

One must reside outside the UK for the whole six tax years before changing their domicile status, according to a little-known provision. But, if your residence changes at any point, the clock restarts at zero and the six-year rule will take effect in the new location.

UK assets are subject to IHT whether the owner is a resident or not.

Many people also fail to realize that any assets located in the UK, regardless of your domicile, residency, or level of presence there, are liable to IHT. This would be especially true for a piece of property. Absolutely, you can own investment property in the UK and not have a UK address or even a residence there.

Deemed Domicile – For permanent inhabitants of the UK

The most major change to the non-domicile regulations, that have taken effect from 6 April 2017, is that if you have been a UK resident for 15 of the preceding 20 tax years, you will be deemed the UK domiciled for all tax purposes. Yet, non-UK resident trusts created before being deemed domiciled offer tax deferral and/or exemption alternatives for people who plan to stay for more than 15 years.

If someone wishes to return to the UK, breaking presumed domicile status necessitates leaving the country for at least six full tax years (for income tax and capital gains tax purposes). If they don't, they must depart for at least three complete tax years in order to avoid paying inheritance tax. Restarting the 15-year clock for the deeming of domicile will require staying outside the UK for six full tax years.

Reducing the Danger

The court and HMRC will ultimately decide your domicile status. It takes a long time to change and maintain your non-domicile status, and there may be a lot of inquiries about your intentions, way of life, social ties, and family if you want to establish your plans for domicile in the future. As was already indicated, if your domicile is contested after your death, a foreign estate may become subject to UK inheritance tax.

British expatriates, UK citizens, and owners of UK assets can benefit from IHT planning strategies such as creating a Pension Trust. Set up a meeting with Business Class Asia to discuss your unique situation and learn how we may help.

Speak with a Business Class Asia Consultant

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