Residence and Domicile
Your liability to UK taxes generally depends on your residence and domicile in the UK and it is useful for you to understand the basic principles and differences of each.
You are domiciled in the country in which you have your permanent home, or in which you consider to be your ‘real’ home. For UK purposes, domicile is not the same as residence or nationality, although both may be important in determining domicile. Under UK law, an individual cannot have more than one current domicile.
Generally, a domicile of origin is acquired at birth and remains until displaced by a domicile of choice. In most cases, unless your father was UK domiciled when you were born, where you are a foreign national moving to the UK for the first time and you do not intend to remain here permanently, it is likely that you will be foreign domiciled.
An exception applies for UK Inheritance Tax (IHT) that deems an individual to be domiciled in the UK if they have been resident here in 17 of the 20 tax years ending with the current year.
Residence is termed as a place of general abode. A person can have more than one residence, such as a second home for vacation purposes or (as many younger people do) a parent’s home as well as their own home, in contrast to only having one domicile. The Finance Act 2013 introduced a new Statutory Residence Test (SRT) to determine residence in the UK. This legislation was finalised when the Finance Act became law in July.
The SRT will consist of a series of tests that need to be considered in sequence. All the tests include a reference to the number of days spent in the UK, while also including some reference to connecting factors or “ties”.
The first set of tests; the Automatic Overseas Test determines when you will not be UK resident, whereas the second set of tests, determines when you will definitely be treated as UK resident.
If your situation remains inconclusive, it is necessary to move to the Sufficient Ties Test.
Further information on how the tests work in detail can be found on the HMRC Tax Residence Indicator