Why are residence and domicile important?

Updated on 25 October 2018

Some migrants to the UK may pay less tax in the UK than people who live, or have lived, in the UK all of their lives; this is because of their residence and domicile status. Here we explain why these two concepts are important.

Your tax residence status and domicile status affects your tax liabilities in the UK.

If you are resident and domiciled in the UK, then you are taxable in the UK on your worldwide income and gains. Most people who were born in the UK and have lived in the UK most of their lives will be resident and domiciled in the UK.

If you are not resident in the UK and/or not domiciled here, as is the case for many migrants, there are special rules which might apply to your foreign income and gains. These special rules might mean you do not have to pay any UK tax or a reduced amount of UK tax on your foreign income and gains.

As a general rule, a non resident individual is also not liable to capital gains tax in the UK (even on assets situated in the UK unless they are used in a trade here) – however this is subject to a number of exceptions.

Even if you are liable to UK tax on your foreign income and gains, if you have also paid tax on them in another country, double taxation agreements can help ensure you do not pay tax twice. Double taxation agreements can also help you when your UK income is taxable in your home country, due to you remaining tax resident there. Where there is no double taxation agreement, you may still be eligible for some relief under UK domestic law.

In addition, it is important to know whether or not you are UK resident, as this may affect your entitlement to UK income tax and capital gains tax allowances and exemptions. If you are entitled to the UK personal allowance, you may be interested to know that in the tax year of arrival and the tax year of departure, your tax bill may be lower than expected, as you may be entitled to a full year of the personal allowance, but only have a part year of taxable income to use against.

It is worth highlighting that for migrants who are entitled to the personal allowance and do not have foreign income and gains, the UK tax system is generally much the same as for everyone else in the UK.

Why not check out our easy-to-digest factsheet

Personal-Allowances-factsheet

You can find more information on the concepts of residence and domicile in HMRC’s Residence, Domicile and Remittance basis booklet (RDR1) available on GOV.UK.

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