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The difference between your domicile and tax residence status

An easy-to-understand explanation of the differences between domicile and residence, primarily for people connected to the UK.

Last updated 21 September 2021 at 11:25

Once someone moves abroad, understanding the difference between domicile and residence is vitally important. Making an assumption about your tax residency status can have serious financial consequences but understanding whether you are domicile or resident is not straight forward.

As a very short answer, it is highly unlikely that your domicile will change when you move abroad, but if you live abroad for a short to medium period of time, your tax residence status is likely to change.

It is vital you seek professional advice about your residency status and following the guidelines from a qualified tax adviser to ensure you are not avoiding tax whether accidentally or otherwise.

Domicile explained

What is domicile? Domicile is the country which a person officially has as their permanent home, or has a substantial connection with. When you're born, you're automatically assigned to the same domicile as your parents, which is defined as your domicile of origin. If your parents were not married, typically your domicile of origin will be the same as your mother, although this may vary depending on each individual's circumstances.

Your domicile of origin then continues until you acquire a new domicile - even if you move abroad, unless you take specific action, it is unlikely that your domicile will change.

Why is your domicile important

Among many things, your domicile is important when it comes to determining your tax liabilities in three main areas: your income tax (from investment or employment), Capital Gains Tax and Inheritance Tax.

Your domicile is an important factor when determining how your individual estate should be passed on in the event of your death and is of particular importance if you were to own property or financial assets in foreign jurisdictions. The actual management of your estate will vary depending on each situation, but it's important to have an understanding whether you live abroad, or have assets location abroad.

Deemed Domicile

For British expats who live abroad there is also a concept of 'deemed domicile' which plays a part when calculating inheritance tax on your estate when you die. 'Deemed domicile' means that even if you are not domiciled in the UK under general law HMRC could treat you as domiciled in the UK at the time of a transfer if

  • you were domiciled in the UK within the three years immediately before the transfer, or
  • you were resident in the UK in at least 17 of the 20 income tax years of assessment ending with the year in which you make a transfer.

Domicile of choice - changing your domicile

After the age of 16, you can change your domicile. To do this you will need to satisfy a number of criteria and be able to provide evidence of each one. The criteria for changing your domicile are varied and each case will be judged on it's merit incorporating the evidence provided. The basic criteria for changing your domicile will typically include as an absolute minimum:

  • Leaving the country in which you are domiciled and settle in another country
  • Provide strong evidence that you intend to live in your new location permanently or indefinitely

Non-UK domiciles (non-doms) living in the UK

It is estimated that there are around five million non-doms (expats) living in the UK, which can also bring with it numerous tax advantages even if tax resident. There are also a number of people who could claim non-dom status and take advantage of the tax benefits without realising it.

If you are, or believe you could be a non-dom living in the UK and have assets or income from overseas read our detailed guide which explains the tax requirements of non-doms living in the UK and will help you understand if you are paying the correct amount of tax. 

Residency

You will be considered a resident (for tax purposes at least) if you're present in a country for 183 days or more per tax year - this is true of the UK HMRC and also other governments around the world. Additionally, if you go and work abroad for more than one year, you must not be back in the UK for more than 91 days, on average, in any 365 day period, for the duration of your time abroad.

Sometimes, if your return home is unavoidable (say for example for compassionate reasons) the HMRC may make an exception, providing you can prove that you exceeded the limits through no fault of your own.

For people with connections to the UK, the Statutory Residence Test is a series of tests conducted to determine your tax residence status in the UK.

Ordinarily resident

To be 'ordinarily resident', the country has to be your ordinary home, where the definition of ordinary means that you spend the majority of your time there, every year and don't take major trips abroad.

It is common to be 'ordinarily resident' but not 'resident' and is often where someone travels overseas for a period of time (include a full tax year).

Multiple residencies

It is possible for you to be resident in more than one country at any given time and it will fully depend on how you've spent your time and what the rules are in each country - the major issue here is that if you don't manage it carefully, you may be taxed twice.

The difference between domicile and residency

There are considered to be two 'domicile' concepts. One is where you have your permanent home (not the same as residency, since that is where you spend your time for tax purposes). The second is your 'domicile of origin', which is where your father's permanent home was. So, you could have been born in France, but if your father was English, your domicile of origin is Britain.

Domicile and residency usually go together but for certain taxation purposes (eg income tax or inheritance tax) your particular mix of residency, ordinary residency, domicile and domicile of origin will make a difference to what tax you have to pay.

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