Employment Tax

Residence and domicile ― effect on tax liability

Produced by Tolley in association with Stephen Wade and Tim Humphries
  • 20 Oct 2021 14:51

The following Employment Tax guidance note Produced by Tolley in association with Stephen Wade and Tim Humphries provides comprehensive and up to date tax information covering:

  • Residence and domicile ― effect on tax liability
  • Residence ― the basics
  • Domicile ― the basics
  • Domicile of origin
  • Domicile of choice
  • Domicile of dependence
  • Effect on income tax and capital gains tax
  • Non-residents
  • Non-residents ― alternative method of calculating the income tax liability
  • Non-residents ― capital gains tax
  • More...

Residence and domicile ― effect on tax liability

It has long been a feature of UK taxation that an individual’s liability to UK tax has been determined by reference to both their residence and domicile status.

The changes to overseas workday relief (OWR) that accompanied the introduction of the statutory residence test (SRT) in April 2013 changed the impact of domicile on claiming OWR. The rules regarding temporarily non-resident individuals were also changed by the introduction of the SRT.

This guidance note looks primarily at the effect of residence and domicile on the taxation of an employee from his individual viewpoint. Residence and domicile also have different consequences for capital gains tax and inheritance tax but inheritance matters are not covered in this module.

Residence ― the basics

The SRT introduced tests to determine whether individuals were resident or non-resident for a UK tax year. Individuals who do not meet either one of the automatic non-UK residence tests or one of the automatic UK residence tests will have their residence status determined based on a combination of ties to the UK and the number of days spent in the UK. FA 2013, Sch 45 contains full details of these tests and guidance on HMRC’s interpretation of these tests can be found in their manual at RDRM11000 onwards.

An individual will be either resident or non-resident in the UK for the entire tax year although the tax year can be split and the individual treated as though they were a resident or non-resident, as the case may be, for only part of the tax year. For more details, please see the Statutory residence test guidance note.

The concept of ordinary residence was abolished for most purposes with effect from 6 April 2013. More details on ordinary residence are given in the Ordinary residence guidance note.

Domicile ― the basics

Domicile is a concept of the common law whose origins have nothing to do with taxation. It is distinct from nationality or residence. It means,

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