Impact of residence and domicile

HMRC’s online guidance note for residence, domicile and the remittance basis: RDR1 is intended for UK residents and non-residents and covers the residence, domicile and remittance basis rules from 6 April 2013 and onwards. 

For most taxpayers, it will be clear whether they are resident in the UK. However, for taxpayers with complex circumstances the statutory resident test (SRT) will help provide more clarity as to their residency status in the UK. UK residents are usually taxed on the arising basis of taxation. This means that all their worldwide income and gains will be taxable in the UK. 

Under new rules that came into effect from 6 April 2017, any person who has been resident in the UK for more than 15 of the previous 20 years are deemed to be domiciled in the UK for tax purposes. In addition, individuals who were born in the UK, to UK domiciled parents, are no longer able to claim non-domiciled status whilst they are resident in the UK. 

Non-doms that remain unaffected by these changes and wish to retain access to the remittance basis of taxation must pay an additional sum in addition to the tax on any income or gains remitted. This sum is known as the Remittance Basis Charge (RBC). The RBC charge for individuals who have been UK resident for at least 7 of the last 9 years is £30,000. The charge for individuals who have been resident in the UK for at least 12 of the last 14 years is £60,000. 

In many cases, relief is given in the UK for foreign tax paid on foreign income and gains under Double Taxation Agreements or via unilateral relief.

Taking a vehicle out of the UK?

The length of time you intend to export your car from the UK will determine declarations that you will need to make to the UK authorities and to overseas customs. It will also play an important role in determining the documentation that will be required both in the UK and on arrival at the overseas destination.

If you are taking your vehicle out of the UK for more than 12 months, it will be considered permanently exported and you must notify the DVLA. You can do this by completing the ‘permanent export’ section of your vehicle log book (V5C) to show the intended date of export. The completed V5C form should then be returned to DVLA along with a letter confirming you have moved abroad and require a vehicle tax refund (if you’re entitled to one) be sent to your new address.

You should keep the rest of your log book with you as you may have to hand it over to the relevant authority when the vehicle is registered abroad.

If you’re buying a vehicle to take abroad make sure the seller follows the correct process for vehicles that will be registered in another country. They must give you the full log book (V5C) – not just the new keeper slip. The process is more complex if you do not have a vehicle log book (V5C).

If you are taking your vehicle out of the country for less than 12 months then this is known as a ‘temporary export’ and the rules are different.

The rules for driving may change from 1 January 2021 when the UK leaves the EU. For example, you might need an international driving permit (IDP) to drive in some countries.

Temporary changes to Statutory Residence Test

The Statutory Resident Test (SRT) rules can be used to determine if someone is resident in the UK for tax purposes. These rules are especially important in cases where an expat or non-dom stays for more than a certain number of days in the UK. Depending on certain pre-defined tests, non-residents can spend between 16 to 183 days in the UK each tax year before they have to start paying UK tax.

In an update to the exceptional circumstances rules for claiming the SRT, HMRC accepts that the Coronavirus (COVID-19) pandemic may impact a person's ability to move freely, to and from the UK or require someone to remain unexpectedly in the UK.

The revised guidance states that if you:

  • are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
  • find yourself advised by official Government advice not to travel from the UK as a result of the virus
  • are unable to leave the UK as a result of the closure of international borders, or
  • are asked by your employer to return to the UK temporarily as a result of the virus

the circumstances are considered as exceptional.

HM Treasury has also issued a letter confirming they will amend the SRT to ensure that any period(s) between 1 March and 1 June 2020 spent in the UK by individuals working on COVID-19 related activities will not count towards the residence tests.

Tax if you work abroad

If you are leaving the UK to work abroad for at least one year (or permanently), there is a requirement to notify HMRC. This is done using a P85 form which should be completed and submitted to HMRC. You will also be required to submit a Self-Assessment tax return if you usually complete one, for example, if you are self-employed.

The completion of the P85 form will also ensure you can claim any tax refund you are entitled to and will also help HMRC decide how you should be treated for the purposes of UK tax. 

The P85 form can be found on the GOV.UK website. There is an online form available as well as a postal form. Your liability to Income Tax will depend on whether you are resident and / or ordinarily resident and / or domiciled in the UK. 

It is also important to consider the National Insurance (NI) implications of working abroad. In some cases, it can be beneficial to continue paying NI contributions whilst abroad as this should help you secure state pension credits.

What is domicile?

Domicile is a general legal concept which in basic terms is taken to mean the country where you permanently belong. However, determining domicile status can be complex. In fact, HMRC guidance states that domicile cannot be defined precisely, but the concept rests on various basic principles.

  • Every individual must have a domicile at all times. The law ascribes a domicile to those individuals it regards as lacking capacity to choose one.
  • An individual cannot have more than one domicile at the same time for the same purpose.
  • An existing domicile is presumed to continue until it is proven that a new domicile has been acquired.

Your first domicile, known as a domicile of origin, is based on that of your parents, usually your father. Your domicile will only change if you acquire a new domicile of choice. To do this, you usually have to move to another country and establish a permanent intention to remain there.

Although domicile can change, there is generally a presumption in favour of the continuation of an existing domicile. To change a domicile, lots of factors are taken into account for example, the location family, property and business interests. This issues that need to be considered are one of the primary reasons that many of these complex cases end up with the courts having to determine the issue.

It is also possible in certain circumstances for an individual to have two domiciles although this is unusual. There is also a concept in the UK of deemed domicile – under new rules introduced from 6 April 2017, any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.