Domicile and residence are complex issues. Normally a person will acquire the domicile of their father. This is known as a domicile of origin and may be different from a person’s country of birth.
It is possible to obtain a domicile of choice. In simple terms this is brought about as a result of changing the country considered to be their permanent home. Despite the changes to the tax law from 6 April 2008 most people who are resident in the UK are likely to benefit if they can persuade HMRC that they are non UK domicile.
Even where a person is non UK domicile they are deemed for inheritance tax (IHT) to be UK domiciled if they have been resident for 17 out of the last 20 years.
In very simple terms HMRC will regard a visitor to the UK as UK resident if they come to the UK with the intention of settling permanently or for a considerable time. Certainly if they spend more than 182 days in a tax year or failing that make frequent and substantial visits they will be treated as UK resident. What are considered frequent and substantial is normally considered to be an average of 90 days or more per year over a 4 year period.
The tax consequences
A UK resident and UK domicile is subject to UK tax on income and gains wherever they arise in the world.
As far as IHT is concerned a UK domicile pays IHT on worldwide assets. A non UK domicile is subject only to IHT on assets located within the UK. Where one spouse has a UK domicile, the other a foreign domicile there is a particularly nasty tax trap in that the normal spouse exemption is restricted.
Up until 6 April 2008 a UK resident non domicile individual had a favorable treatment in that they had to pay UK tax on overseas income and gains only to the extent that they were remitted to the UK.
From 6 April 2008 where a non domicile has been resident for 7 of the last 10 tax years they can keep this favorable treatment only by paying a £30,000 annual charge. In other words if they don’t pay the £30,000 they have to pay tax on all income and gains wherever in the world they arise. If resident for less than this time they can adopt this remittance basis only by sacrificing their UK personal allowances. This is subject to a £2,000 de minims limit.
It must be borne in mind that in any case any amounts actually remitted are subject to tax.