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Expat Investor : August 2009
EXPAT LABELS Domicile and residence – the UK concepts Karen Marks, Partner and International Tax Planning Expert with law firm Boodle Hatfield, explains the meaning behind these key British expatriate labels. If you have been living outside of the UK for some time, it is easy to forget that you may still have a connection to the UK which may have an impact on your UK tax liability.HM Revenue & Customs (HMRC) have recently updated their guidance on residence and domicile issues in booklet HMRC6. You may retain your UK domicile. Domicile is a general law concept which relates to a person’s roots and where they are settled and where their permanent home is located. It is not the same as nationality or residence. An individual will have a domicile of origin which they take at birth, usually based on their father’s domicile. A person could be born outside the UK but still have an English domicile of origin. This would be the case, for example, if an English couple were working abroad for a short period and had a child while they were there. The child may acquire a domicile of dependence outside the UK if, whilst still a child, the family were to settle abroad. If you have moved to a country and intend to settle and remain in that country long term, having severed your connections with your country of domicile of origin, you may have acquired a domicile of choice. Following recent cases, it is clear the UK Revenue will look for a permanent connection to the new country and a severance of connections with the country of origin. A person who is and remains domiciled in the UK will be subject to UK inheritance tax on worldwide assets on death. Credit should be available for the death or estate tax paid in other jurisdictions against the inheritance tax liability. On a change of domicile, a person is treated as retaining their UK domicile for three further years from the time of the change for inheritance tax purposes. The individual must be resident in the country at the time of the decision to settle. So, if you remain resident in the UK with a UK domicile but dream of settling elsewhere, this will have no impact unless and until you move out of the UK with the intention of settling abroad permanently. If you lived in the UK and you leave to take up residence elsewhere, you will not be treated as losing your residence status unless you have left for more than just a temporary purpose. Frequent visits to family are likely to negate a claim to be non-resident, as are property interests and other connections to the UK. Even if you have a base abroad and are staying over in the UK between assignments, you are likely to be treated as remaining UK resident. This was the case for a pilot living in South Africa but staying in the UK between international flight assignments. Generally, a person visiting will not be treated as being resident in the UK if they spend less than 183 days in the UK in any UK tax year (6 April to following 5 April) and do not spend 91 days or more averaged over a period of 4 consecutive tax years. However, if there is a regular pattern of visits and connection to the UK, the person may be resident earlier than the fifth year of visits. If the person is in the UK at midnight on any day, that day will count towards the total. This change was introduced on 6 April 2008. If you visit the UK regularly, you should review the total of the days spent in the UK. Individuals leaving the UK and who have been resident in the UK will need to show that they have actually left the UK before the day counting rules come into play. If the individual is non-resident for less than five full tax years having been a long-term resident prior to departure (resident in the previous four out of seven tax years), they will be liable to capital gains tax on disposals of pre- owned assets on return. There have been sweeping changes to the taxation of non-domiciled persons resident in the UK and claiming the remittance basis of taxation. In essence, if a person claims non- domicile status and the remittance basis of taxation having been resident in the UK for more that seven years, an annual charge of £30,000 is levied if the foreign income and gains are above a £2,000 threshold for the year. This does not exempt foreign income and gains from charge. If funds or assets representing the foreign income and or gains are remitted, UK tax will be payable. The rules relating to remittances have been widened, making it more difficult to reside in the UK without at some point remitting chargeable funds directly or indirectly. A non- domiciled person living abroad for less that five years who had previously been long-term resident will also need to be aware of the five year rule, explained above, as this will impact on foreign income and gains within the remittance rules and remitted during the non-residence period. With these issues in mind, if you are considering taking up residence in or returning to the UK, you should take advice prior to arrival, as planning opportunities may be lost. Karen Marks can be reached via email: firstname.lastname@example.org A private bank that will stand the test of time. 2009 Winner Best International Wealth Manager 2008 Winner Best International Private Bank Group Best International Wrap Provider 2007 Winner Best International Private Bank Best International Investment Platform Provider 2006 Winner Best Offshore Bank Best Commitment to Service 2005 Winner Best Offshore Bank Best Offshore Bank Product (FOCUS) Best Internet Service 2004 Winner Best Offshore Bank 2003 Winner Best Offshore Bank Best Offshore Bank Product (FOCUS) 2002 Winner Best Offshore Bank Best Offshore Bank Product (FOCUS) 2001 Winner Best Offshore Banking Product Range Take comfort in the knowledge there is a private bank that can guide you safely through stormy waters. For details, please call +44 (0) 1624 645000 or visit www.fairbairnpb.com distinctly different Fairbairn Private Bank is a registered trade name of Fairbairn Private Bank (IOM) Limited. Fairbairn Private Bank (IOM) Limited is licensed by the Isle of Man Financial Supervision Commission to take deposits and provide investment services. Registered office: St Mary’s Court 20 Hill Street Douglas Isle of Man. The London office is authorised and regulated in the UK by the Financial Services Authority. UK Financial Services Authority registration number: Fairbairn Private Bank (IOM) Limited 313189 (EXINV) July/August 2009 ? EXPAT INVESTOR 7
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