When it comes to determining the amount of tax you need to pay in the UK, your nationality and citizenship aren’t particularly relevant. Two key terms – residence and domicile – are more important for tax purposes and we briefly define both below.
Residence is determined by the location of any homes you have, your place(s) of work and the number of days you spend in the UK each year. It’s possible to be resident for tax purposes in more than one country so any tax treaties between the different countries will apply. The general rule is that you are only liable for tax on any income, gains and earnings accrued in the UK if you are non-resident here.
There are complex exceptions to this rule, so please contact us if you need further clarification.
The Statutory Residence Test is used to establish the basis on which you pay UK tax and it replaces the concept of ordinary residence. There are three parts to the test, the basic idea being that the individual is a UK resident if two of these – the automatic residence test and the sufficient ties test – are met.
Your domicile is the country where your father (or mother if your parents were unmarried) had a permanent home at the time you were born. It can therefore be different to your own nationality.
You can of course have a different residence and domicile if you don’t intend to stay in the UK permanently or if you were born abroad and retain links to your country of birth but currently spend most of your time in the UK. You can only have one domicile at any one time but it is possible to change it.
If you have any foreign income or capital gains and are resident but not domiciled in the UK, the amount of income tax and capital gains tax you pay will be affected by your domicile. You’ll have the option of paying tax on your foreign income and gains on either the arising basis (all of your foreign income is taxed) or remittance basis (only the money you bring into the UK is taxed).
Payment of inheritance and corporation tax can also be affected by your domicile, and if you complete a self-assessment tax return you may be asked about your country of domicile.
Get in touch for more help
Although this blog provides a short introduction, the rules around residence and domicile can be complex. Read our guide to residence and domicile
Or call us on 020 7330 0000 to discuss this area of tax in more detail.