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Technical notes

RESIDENCY, DOMICILE AND ORDINARY RESIDENCE

The 2008 revision to the law on the remittance basis for non-domiciled persons, and the new guidance notes from HMRC make this an extraordinarily complicated subject. What fellows has been extracted from the guidance notes published by HMRC in Booklet HMRC-6. At 80 pages it can hardly be called a booklet. These 80 pages attempt to summarise and give guidance on the new rules and interpretations. This note can at best be considered a rough guide. If this subject may be of relevance to you should study the whole publication HMRC-6 and/or take professional advice relevant to your personal circumstances.

The terms 'residence' and 'ordinary residence', are not defined in the Taxes Acts. The guidance given on these terms throughout this note is largely based on rulings of the Courts and how they are interpreted and how they are put into practice on a day to day basis. This guidance tells you the main factors to be taken into account when deciding your residence and ordinary residence status. Your status is determined by the facts of your particular case. It is not simply a question of the number of days you spend in the country.

If you are resident in the UK you are normally treated as being on the 'arising basis of taxation' (see below). This means that you will pay UK tax on all of your income as it arises and on your gains as they accrue, wherever that income and those gains are in the world. There are some exceptions to this.

It is possible to be resident in the UK, but not ordinarily resident here or to be resident but not domiciled here. If either of these circumstances applies to you, you have a choice of whether to use the arising basis of taxation to account for your worldwide income and gains as they arise/accrue or to use the remittance basis of taxation. Details of the remittance basis can be found later in this guidance. But, broadly, it involves paying tax on income arising and gains accruing in the UK (as with the arising basis), but paying tax on foreign income and gains only as these are brought ('remitted') to the UK. Access to the remittance basis of taxation is not automatic and depending on how much foreign income and gains you

have, you might have to make a claim if you want to use it by completing the relevant boxes of a Self Assessment return. It might also involve paying a large flat sum for access to the remittance basis.

If the remittance basis is not available to you (for whatever reason) then income that is taxed overseas may be granted some relief when it falls to be taxed in the UK as well. The agreement between various countries as to how this will work is contained in a “Tax Treaty” wherein you will find the “double Taxation Agreement”.

Residency

The number of days you are present in the UK is only one of the factors to take into account when deciding your residence position.

If you are in the UK for 183 days or more in the tax year, you will always be resident in the UK for tax purposes. There are no exceptions to this. You count the total number of days you spend in the UK – it does not matter if you come and go several times during the year or if you are here for one stay of 183 days or more. If you are here for less than 183 days, you might still be resident for the year. You should always look at the pattern of your lifestyle when deciding whether you are resident in the UK. Things you should consider would include what connections you have to the UK such as family, property, business and social connections. Just because you leave the UK to live or work abroad does not necessarily prove that you are no longer resident here if, for example, you keep connections in the UK such as property, economic interests, available accommodation, and social activities or if you have children in education here. For example, if you are someone who comes to the UK on a regular basis and have a settled lifestyle pattern connecting you to this country, you are likely to be resident here. If you come to the UK as part of the normal pattern of your life then you may be resident in the UK. If your visits to the UK are an exception from the normal pattern of life, then you are probably not resident in the UK.

Ordinary Residency

Although ordinary residence in the UK is not simply a question of the number of days you are physically present in the UK over a period of time, you can look at the average number of days you are in the UK to get an idea of whether or not you are ordinarily resident here. If you come to the UK regularly and your presence here averages 91 days or more in a tax year over an appropriate period of time, you are likely to be ordinarily resident here. An exception would be if your visits lacked a settled purpose, although the more time you spend in the UK the more likely it is that any residence here has the elements necessary to make you ordinarily resident. You should calculate your average presence in the UK on the basis shown below. The facts of your particular case will determine the appropriate period over which the calculation should be made, but this should only be more than four full tax years in wholly exceptional circumstances. You should not rely on the calculation as a definitive basis for proving whether or not you are ordinarily resident in the UK.

 Total visits to the UK (in days) x 365   = annual average visits
       Relevant tax years (in days)

Domicile

Domicile is more clearly defined, though it is generally much more complex to determine. It is often described as the country you consider to be your “mother country”. But if you were born in the UK you will normally be challenged if you claim that you are domiciled elsewhere. Everyone has a domicile, but it can change. For example a second generation of a migrant family may consider that their country of birth (and not the parents’ country of birth) is their domicile. If a person remains in the UK for more than seventeen years, it will be presumed that the UK is the new domicile.

This topic is sufficiently complicated for HMRC to have produced some flow-charts to help you understand your position. While the need for these indicates the complexity of the subject, they are clearly laid out and a great help. They are to be found on pages 25-28 of HMRC 6.

DISCLAIMER
© Landlords Tax Services Ltd 2008 All Rights Reserved - In an article such as the one on this page we can only give brief general guidance and cannot cover all situations. This guidance may not cover all your personal circumstances and so you should not rely on it. Before taking action or not, always do your own specific research and seek appropriate professional advice which takes into account your personal circumstances, with the full facts of the case and all documents to hand. Neither Maurice Patry F.C.A. nor Landlords Tax Services Ltd can be held responsible for the consequences of any action or the consequences of deciding not to act.