April, 2021

Author: Lily Chow

A couple of HMRC enquiries (aka latest nudge campaigns) were issued to our clients to clarify their UK tax position. The targets of the campaigns include two specific categories of individuals: those whom HMRC consider to be deemed domiciled and those who consider they are non-UK tax residents.

The taxation of individuals in the UK is determined by residence and domicile status. Under the current legislation, the UK applies a comprehensive statutory residence test (SPT) to determine whether an individual is resident in the UK. By determining the residency, individuals may also need to look at their residence position for the previous years – and often of their parents – and subsequent years – an individual’s stated objective of leaving the UK.

From 6 April 2017, HMRC has the concept of deemed domiciled for all UK income tax purpose once an individual has been UK resident for 15 out of the previous 20 tax years. This means he or she will no longer be able to claim the remittance basis from that date. Individuals who have previously claimed non-domicile status will pay tax on their worldwide income and gains, as well as be subject to UK inheritance tax (IHT) on their worldwide assets, same as UK domiciled individuals. In other words, it also means a minor who lived with non-domiciled parents in the UK can be deemed domiciled if he or she meets the 15 out of 20 years rule.

Under English law, an individual’s domicile is the country in which they have his or her permanent home, even though he or she may be currently resident in another country. The law also states that every person is borne with a domicile of origin, which is normally that of his or her father. For example, an individual whose family came from Hong Kong and continues to have ties to Hong Kong is likely to be considered as domiciled in Hong Kong, even if they have lived in the UK for a number of years, provided they can demonstrate to HMRC when an in what circumstances they will return to Hong Kong. The individual must have strong evidence to HMRC to demonstrate they do not intend to stay in the UK or they can provide evidence to show they will leave the UK to remain non-UK domiciled.

Conclusion

As always, determining the domicile status can be very complicated and the tax implications are far reaching after 6 April 2017. Therefore we recommend that rather than being reactive when a domicile enquiry is made by HMRC, non-domicile individuals should take a proactive way of thinking and continually maintain records of their origins, past actions and future plans to ensure that domicile status can be evidenced to HMRC when being asked.

If you would like to discuss any issues in relation to UK domicile, please contact us at tax@zetland.biz.