Home is where the ‘tax bill’ is!
Your domicile determines the tax regime

An individual’s domicile can be equated with their home for tax purposes, as opposed to the concept of where an individual resides at any given moment. As such, it is fundamental to how tax is paid. Everybody has to have a domicile.

You can change your domicile, but it can be difficult to persuade HM Revenue & Customs (HMRC) that you have. If you want to move abroad for tax purposes you need to show you have shifted all aspects of your life offshore.

If you are non-UK domiciled, you can live in the UK and not pay tax on your overseas income and capital gains. This is called the "remittance basis of taxation" and enables you to fund your lifestyle without a UK tax liability. If you're domiciled and resident in the UK, everything you own worldwide is subject to UK tax.

HMRC'S form, DOM1, has the relevant questions to help establish if you are unsure of your particular position. It’s worth remembering that any individual with an overseas father may find themselves non-UK domiciled, even though they have never lived outside the UK. Similarly, you could live in the UK for a considerable time as an overseas national (perhaps more than 50 years) and still be non-UK domiciled.

If you are non-UK domiciled the government has proposed changes to these rules. These include an annual charge of £30,000 to benefit from non-UK domiciled status once you have lived in the UK for seven years. If you are non-UK domiciled, you should take professional advice and consider taking steps now to secure your profits before 6 April 2008. From this date, the rules are likely to be tightened and many of the existing advantages may disappear.

If you are British and want to retire abroad, inheritance tax (IHT) may be a major concern for you. To avoid an IHT liability you must change your domicile status. You will have to persuade HMRC that you have left the UK permanently. For the first three years of your departure, you will still be subject to IHT even if you have shed your domicile status. You could consider using a life assurance policy written in an appropriate trust to cover any potential tax bill levied in this three-year period
A tax bill that becomes due will depend on where you reside. But residence is an annual test, while domicile looks at your longer-term intentions. You will be resident in the UK if you spend six months a year in the UK or 90 days a year on average. If you are non domiciled in the UK, you can still be resident here and avoid tax on offshore profits. If you are UK domiciled, shedding residence is a key way to escape tax, although this could require you to go abroad for at least five years.

Need more information? Please email or contact us with your enquiry.

Levels and bases of, and reliefs from, taxation are subject to change.