HMRC challenging domicile status

Have you received a "nudge letter" from HMRC about your domicile?

Have you received a letter from HMRC about your domicile status? 

HMRC are targeting UK resident wealthy individuals currently claiming the remittance basis to ensure they are reporting their Domicile Status correctly with regards to paying UK tax. If a person's domicile is determined to have been in the UK, then the tax consequences can be extremely significant. We understand that this can be daunting, but correctly addressing your domicile now with the assistance of our specialist tax advisers will ensure you do not pay too much tax and avoid higher penalties than if HMRC subsequently correct your status as a result of an investigation.

If you are unsure on whether you need to consider your domicile status, or you have received correspondence on this from HMRC and would like to review your position please get in touch. One of our tax specialists will be more than happy to discuss this in order to help you make an informed decision and understand your obligations.

UK Domicile Status for Tax Purposes

As a UK tax resident, determining your domicile status is important. It can, in some cases, enable much more favourable tax treatment if your domicile is located elsewhere.

New rules were introduced from 6 April 2017 which changed domicile status for some UK tax residents. Long term residents and those born in the UK can no longer use the remittance basis when reporting their income and gains.

 What is domicile?

Although your tax residence may change regularly depending on your circumstances, your domicile is more permanent. In general, your place of domicile is the country in which your father is domiciled when you are born, known as your domicile of origin. Adults can choose their domicile by cutting all ties with their domicile of origin and showing a clear intent to establish permanent and enduring ties to a new country. This is known as domicile of choice.

If your place of domicile is not the UK, then you have the option to be taxed on one of two bases. The arising and the remittance basis. The arising basis means you are taxable as all domiciled UK residents are, on your worldwide income and gains as they arise wherever they may be. The remittance basis however allows a non-UK domiciled individual to elect to only be taxed on any income and gains they remit to the UK within the tax year in question.

 What the new rules mean?

The new rules mean that you will be deemed to be UK domiciled if you fit either of the following two conditions;

·        You are resident in the UK after 5 April 2017 and were born in the UK of have the UK as your domicile of origin. This is regardless of whether you have opted to change your domicile of choice.

·        If after 6 April 2017 you have been UK resident for at least 15 of the last 20 tax years immediately before the tax year in consideration.

 If you have become deemed domicile under one of the above conditions you must pay tax on the arising basis reporting all your worldwide income and gains from the year in which you are deemed UK domiciled.