Moving to the UK as a UK Citizen

 

 

We have written dozens of articles on UK tax in the past –

https://htj.tax/?s=uk

 

We have even written about the ideas a non UK citizen should consider from a tax perspective when moving to the UK from a low tax jurisdiction –

https://htj.tax/2020/08/moving-from-singaporeto-uk/

 

But what if someone is a UK citizen who has lived outside of the UK for decades and is now considering a return?

 

Naturally their main concern would be their domicile as they would want to be taxed on the remittance basis - https://htj.tax/2018/03/uk-tax-arising-vs-remittance-basis/

 

But how would their domicile be determined?  Domicile is a complex discussion that is beyond the scope of this article.  However, we would try to provide a light introduction.  Depending on your perspective, in England there are either 3 or 4 types of domicile – domicile of origin, choice, dependence and deemed domicile.

 

 

 

Domicile of origin

 

You acquire a domicile of origin at birth. This is usually the same as the domicile of your father at that time, that is, the country that your father considered to be his permanent home at the date of your birth. As a result, your domicile may not be the country where you were born.

 

If your parents were not married when you were born, you will take your domicile from your mother. If you are adopted, you take your domicile from your adopted father – if there is no adopted father, you take the domicile from your adopted mother.

 

It is very difficult to displace your domicile of origin.  Indeed, your domicile of origin is retained permanently, unless it is superseded by a domicile of dependence or a domicile of choice.  Your domicile of origin also returns if you acquire a domicile of choice which then ceases but you have not yet made a new domicile of choice.

 

Most migrants to the UK are likely to have a domicile of origin outside the UK, meaning that they are not domiciled in the UK (known as ‘non-dom’).  Unless you choose to remain in the UK permanently or indefinitely, and sever ties with your original country of domicile or origin, you will probably continue to be not domiciled in the UK.  However, if you were originally born in the UK or if you remain in the UK for more than 15 years, then you will be deemed to be domiciled in the UK.

 

 

 

Domicile of dependence

 

Until you reach the age of 16, your domicile follows that of the person on whom you are legally dependent – if that person changes their domicile (through choice) then yours will also change.

 

If you were married before 1 January 1974, the wife would automatically acquire the domicile of her husband.

 

 

 

Domicile of choice

From the age of 16 (earlier in Scotland), an individual may be able to acquire a new domicile. This is called a domicile of choice. In order to acquire a domicile of choice, you must demonstrate the following:

  • You have settled permanently in the country in which you now consider yourself domiciled;
  • You must intend to stay there for the rest of your life;
  • Generally, you must break your ties with the country of your domicile of origin. You do not necessarily have to become a UK citizen or passport holder but these factors will be taken into account.

You will have to prove that you have chosen to live in the new country on a permanent basis and provide strong evidence of your intention to stay there permanently or indefinitely.

Factors such as your intentions (for example, where you intend to retire),

  • your Will,
  • your permanent place of residence, and
  • your business, social and family commitments

will be taken into consideration when looking at whether you have acquired a domicile of choice.

In most cases it will be fairly obvious what your domicile status is, but it can be very complex in some cases. If a lot of tax is at stake, you should seek professional help.

 

 

 

Deemed domicile

Since 6 April 2017, HMRC treats some individuals who are not UK domiciled as if they are domiciled in the UK for income tax and capital gains tax purposes.

 

This affects you if:

  • you are domiciled outside the UK, but you were born in the UK with a UK domicile of origin; or
  • you have been resident for tax purposes in the UK for at least 15 of the previous 20 tax years.

 

The effect of being UK resident in a tax year and deemed domiciled in the UK for income tax and capital gains tax purposes is that you are chargeable to UK tax on your worldwide income and gains on the arising basis in the same way as individuals who are actually UK resident and UK domiciled.

 

 

 

How do I tell HMRC what my domicile status is?

 

In the UK, you self-assess your residence and domicile status.  If you are someone who is required to submit a tax return, you will need to complete the SA109 ‘Residence, remittance basis etc.’ supplementary pages if your domicile status is relevant to the entries on your tax return (for example, if you are claiming the remittance basis and have left out your foreign income and gains on the basis that they have not been remitted).

 

You should note that you could be subject to a potential enquiry by HMRC if they wish to challenge the position you have taken.

 

There are some helpful flowcharts on HMRC’s website.  But please note that they are guidelines and not definitive given that rules around domicile are heavily influenced by case law as opposed to pure legislation.

https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1

 

 

Notes to domicile flowcharts

  1. Your domicile status depends on the facts of your individual case. The flowcharts will give as strong an indication as possible, based on various generic factors. However, if your affairs are more complicated the flowcharts may not provide a definitive answer.

 

  1. Your domicile status may be dependent on someone else’s domicile (usually your father’s). The flowcharts each provide a sequence of questions without reference to domicile itself to reach a conclusion showing what your likely status will be.

 

  1. If your parents were not married at the time of your birth, references in the flowcharts to ‘father’ should be read as ‘mother’.

 

  1. If you were adopted, ‘father’ should be read as ‘adopted father’.

 

  1. If your father’s domicile status changed when you were a child, you should not use the flowcharts, as the apparent conclusion could be misleading.

 

  1. If, when using the flowcharts, you arrive at the conclusion you’re ‘domiciled in the UK’ or ‘probably domiciled in the UK’ you may simply accept that conclusion. If you do, you should not tick the ‘non-domiciled’ box on form SA 109 (Residence, remittance basis etc. Self Assessment supplementary page). You will then be taxed on the arising basis.

 

  1. If the flowchart leads you to the conclusion that you’re ‘domiciled outside the UK’ or ‘probably domiciled outside the UK’, you may feel that this confirms your own view. Or, you may consider consulting the RDRMor a professional advisor.

 

  1. Your domicile relates to a particular territory. In most cases, this will be a country, but in federal countries, such as the USA and Australia, it relates to the individual state. Although the UK has 3 territories for domicile purposes, it does not operate as a federal system.

 

 

 

This image shows flowchart 1: where is my domicile?

 

This image shows flowchart 2: you were born in the UK, your father was born in another country and you have no firm plans, or only short term plans to remain in the UK.

Example 5

Catherine is living in the UK and has no firm plans about where she will live in the future. She was born in Scotland. Her father was born in Sweden and her grandfather and ancestors were Swedish.

Catherine’s father was a business executive and the family lived in various countries, of which the UK was one. A musician, she has lived in several countries as an adult, but not yet in Sweden. Catherine is an only child. Her parents are dead and she has one surviving aunt. She rarely visits her family in Sweden. Her profession and lifestyle mean that she develops links with the place in which she is living.

Catherine uses flowchart 2 and concludes that she is probably domiciled in the UK. Given this, and the possibility that neither she nor her father ever settled anywhere outside Sweden, she might wish to consult more detailed guidance or seek the opinion of a professional adviser.

 

This image shows flowchart 3: you were born abroad and have no firm plans, or only short term plans, to remain in the UK.

Example 6

Daniel was born in New South Wales. He lives in England and intends to stay for at least another 2 years. Daniel follows the link from flowchart 1 to flowchart 3.

Daniel’s father was Greek. Daniel has retained few links with Greece; he visits his family once every 2 or 3 years. His 2 sisters have lived in Western Australia for many years and his widowed mother lives there with his elder sister. Daniel owns property in Western Australia and has an interest in a business there. The family has little connection with New South Wales, although Daniel is in touch with a couple of childhood friends there.

Daniel finds it difficult to reach a conclusion about his domicile, as he has links with Australia but not specifically with New South Wales. He consults detailed guidance and realises that his current intentions cannot be considered in isolation. Daniel realises that his residence in the UK for over 30 years and his intentions during that period have to be taken into account.

Daniel concludes that he is domiciled in the UK (the result flowchart 1 would have given him if he had considered his long-term UK commitment from the outset). This is reinforced by Daniel’s relative lack of links with the territory of his birth.

This image shows flowchart 4: you have plans to leave the UK.

Example 7

Aleksy, an electrician, was born in Poland and intends to return there in 3 or 4 years. His family background is Polish and his immediate family live in Poland.

Brian, an investment banker, was born in New York and intends to retire to France at the age of 60, just over 5 years from now. He has lived in London for much of his life, although he has spent several periods living abroad because of his employment.

Both Aleksy and Brian consider flowchart 1 and conclude that they should go to flowchart 4.

Both were born in another country; each must consider his father’s place of birth. Aleksy’s father was born in Poland; his grandfather lived his entire life in Poland, just as several generations of his family had done. Brian’s father was born in Ireland, into a wealthy family the members of which divided their time between Ireland and England.

Aleksy believes that most of his personal links are with Poland and concludes that he is domiciled outside the UK. (Aleksy is typical of the majority of individuals who come to live and work in the UK without intending to remain here indefinitely).

Brian has personal links with England, Ireland, France and New York. He thinks that, on balance, most of his personal links are with England but reaches the conclusion that he is probably domiciled abroad. Brian recognises that this is an indication of his domicile status and, because of his more complex circumstances, consults HMRC’s more detailed guidance and then seeks the views of a professional adviser.

Example 8

Ethan was born in the UK and has lived here all his life apart from a year spent travelling around Europe and annual holidays spent abroad. His father was also born in the UK. Ethan plans to retire to France and has already purchased a house there which he, and his entire family visit whenever they can.

While Ethan has clear and firm plans to move to France he is currently domiciled in the UK and flowchart 4 leads him to that answer.

 

 

 

 

 

 

 

A Trust

 

A popular discussion point is of course, the use of foreign trusts to shield foreign assets from UK taxes.  The rules are quite complex but it is a strategy worth exploring.

 

Non-resident trusts are usually:

  • if none of the trustees are resident in the UK for tax purposes
  • where only some of the trustees are resident in the UK and the settlor of the trust was one of the following:
    • not resident
    • not normally resident
    • domiciled in the UK when the trust was set up or funds added

 

 

 

 

Non-resident trusts and Income Tax

The tax rules for non-resident trusts are very complicated. Although there are general rules that apply to all non-resident trusts, each trust is different and is treated separately depending on:

 

 

 

 

Guidance for trustees

Trustees of non-resident trusts do not pay UK tax on foreign income they receive. For most discretionary or accumulation trusts, trustees pay tax at:

  • the standard rate on the first £1,000 of taxable income
  • 1% on dividend income from stocks and shares
  • 45% on UK interest (including ‘free of tax to residents abroad’ securities) if a beneficiary, or someone who might become one, is resident in the UK
  • 45% on all other non-dividend income arising in the UK

 

For interest in possession trusts, trustees pay tax at the:

  • dividend ordinary rate (7.5%) on trust dividend income
  • basic rate (20%) on all other types of income

Guidance for settlors

You’ll have to pay tax on your trust’s income as if it’s your own income if the following apply:

  • you’re the settlor (the person who puts assets into a trust)
  • you, your spouse or civil partner can benefit from the income or capital of a non-resident trust

The income of the trust is not treated as yours if you (or your spouse or civil partner) cannot benefit from it. However, you’ll also have to pay Income Tax if the:

Guidance for beneficiaries

If you’re a UK resident beneficiary of a non-resident trust you may have to complete a Self Assessment tax return and the SA107 supplementary pages. The guidance notes for these pages tell you how to complete them.

If you’re a UK resident and get income from a non-resident discretionary trust, you can get tax relief if the trustees have already paid tax on the income. This relief is given under ESC B18. Read page 11 of Income Tax and Capital Gains Tax for non-resident trusts (PDF, 370KB, 21 pages) for more guidance.

If you’re a non-resident beneficiary of a non-resident income in possession trust, you only need include income from a UK source on your tax return.

Read Income Tax and Capital Gains Tax for non-resident trusts (PDF, 370KB, 21 pages) for more guidance.

Non-resident trusts and Capital Gains Tax

Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may have to pay Capital Gains Tax if assets are sold, given away or exchanged (disposed of) and they’ve gone up in value since being put into the trust.

Non-resident trustees do not usually pay UK Capital Gains Tax. Instead, the settlor or the beneficiaries may have to pay tax on gains made by the non-resident trustees. But if you’re a non-resident trustee and dispose of a UK residential property you may be liable to pay Capital Gains Tax. The tax rate for non-resident trustees is the same as for resident trustees and the annual exempt amount is also available.

You must report the disposal of a UK residential property to HMRC within 60 days of the disposal using the online form.

Read HS299 Self Assessment helpsheet to help you decide whether you have taxable capital gains as settlor of a non-resident trust.

Non-resident trusts and Inheritance Tax

Trusts, including non-resident trusts may have to pay Inheritance Tax on assets in the trust. Non-resident trusts will only have to pay it on assets situated outside the UK if the settlor was domiciled (or deemed domiciled) in the UK when the assets were put into the trust.

Depending on the value of the assets in the trust, Inheritance Tax may be due when:

  • assets are put into the trust
  • the trust reaches a ten-year anniversary
  • assets are taken out of the trust or the trust ceases

It does not matter if the trustees or beneficiaries are resident in the UK or not.

 

 

Bottom line?

Get professional advice.

 

 

 

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