Post-Brexit immigration considerations on a domicile position & benefits

Your tax residence status and your domicile status dictates your liability for UK tax on foreign income or gains on the sale of foreign assets.

UK residents are taxed on all income and gains regardless of whether it originates from the UK or has already been taxed in another country and all income and gains must be declared yearly on the tax return. This does not necessarily apply to non-domiciled individuals.

An individual who is resident but not domiciled in the UK, may have an annual choice in whether to use the arising basis of taxation or the remittance basis of taxation.

If the remittance basis is chosen tax will be required to be paid on:

  • all income and gains which originates in the UK

  • all foreign income and gains the taxpayer or other relevant person brings into the UK, regardless of whether the remittance occurs in a later tax year

  • Longer tern UK residents may also be liable for the Remittance Basis Charge at a rate of £30,000 or £60,000 depending on the exact length of residence

For this purpose domicile refers to an individual’s permanent or indefinite home. There are three types of domicile; origin, dependence or choice. An individual’s domicile of origin is generally determined by where their father was domiciled when they were born. A domicile of dependence is created when the individual’s father changes their domicile while they are under the age of 16. A domicile of choice is created where an individual establishes a new country as their permanent or indefinite home or where they retain strong links to their domicile of dependence after the age of 16. When an individual believes themselves to be non UK domiciled as a result of one of the above categories it is important to be able to identify the circumstances in which they would no longer live in the UK.

Under rules which came into effect from April 2017, an individual will be considered ‘deemed domicile’ and therefore no longer eligible to claim the remittance basis of taxation if they fall to into either of two categories, known as ‘Condition A’ and ‘Condition B’ which are as follows:

Condition A:

  • Was born in the UK

  • The domicile of origin was in the UK

  • Was resident in the UK for 2017 to 2018 or later years

Condition B:

  • Has been UK resident for at least 15 of the 20 years immediately before the relevant tax year

Following the UK’s departure from the EU on 31 January 2020, individuals previously resident in the UK on the basis of their European nationality will have to consider their immigration status and the various options to remain resident in the UK including an application for settled status or applying for a UK passport where they are eligible to do so.

This inevitably raises questions for non UK domiciled individuals as to whether applying to formalise their immigration status will have any implications for their domicile position and specifically whether it will result in them being considered to have established a domicile of choice in the UK.

In the case of the settled status application process, there is no requirement to make a statement that you consider the UK your permanent or indefinite home nor any requirement to spend specific periods of time in the UK going forward. This is therefore unlikely to be sufficient for HMRC to be able to demonstrate that an individual has established a domicile of choice in the UK, it would require a number of factors to also be in point.

With a UK passport application, although there is a requirement here to make a statement that you consider the UK as your permanent or indefinite home, there is long established practice of HMRC accepting that a passport is often applied for out of convenience of movement or to prevent the need to renew costly visas and does not mean that there is no intent to leave the UK at a defined point in the future. An application for a UK passport should also therefore not in itself allow HMRC to argue that an individual has established a domicile of choice in the UK.

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