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Residence and domicile

Advisers active in advising other than UK resident domiciliaries will be familiar with the residence and domicile rules, which are explained in detail in Inland Revenue booklet IR20.


The residence and domicile rules determine an individual&#39s liability to UK tax. Broadly speaking, the extent to which an individual is liable to UK tax will depend upon whether he is:

  • resident; and/or
  • ordinarily resident; and/or
  • domiciled in the UK.

Subject to the provisions of any relevant double tax treaties individuals who are both UK resident and UK domiciled pay tax on their world-wide income and capital gains as they arise. Similarly, an individual who is UK domiciled will pay inheritance tax (IHT) on his world-wide assets.

Individuals who are UK resident but not UK domiciled, however, pay tax on their foreign income and gains only when these are remitted to the UK. The non-UK situs assets of such individuals are, similarly, exempt from IHT.


The question of whether an individual is resident and/or ordinarily resident in the UK will largely be a question of fact, judged in accordance with that individual&#39s circumstances. Certain well known principles such as the “six months in any given tax year” are fairly well known in determining residence.


Whether an individual is domiciled under the general law in any given jurisdiction will be judged in accordance with that individual&#39s circumstances in light of the general law on domicile in that particular jurisdiction. In the UK the principles of domicile of origin, domicile of dependence and domicile of choice are, however, all relatively well known.

As far as IHT is concerned, however, there exists the concept of deemed domicile which provides that, where an individual has been resident in the UK for 17 out of the last 20 years (or was domiciled in the UK for any of the previous 3 years), he will be deemed to be UK domiciled for IHT purposes.

There is no corresponding deeming provision in relation to income or gains.


The deeming provisions pertaining to IHT do, in theory, provide a mechanism whereby those individuals who are long term resident will be liable to IHT on their world-wide assets.

The Government believes that the current rules are inadequate to ensure that those same long term resident individuals should also be subject to UK tax on their world-wide income and gains.


It should be borne in mind that the current rules are largely based on case law that has developed over the past 200 years since income tax was introduced in 1799. Given the world in which we now live, it is hardly surprising that these laws (which, it is generally accepted, are complex and poorly understood), are believed to be ripe for review.


In last year&#39s Budget, the Chancellor of the Exchequer announced that there would be a review (and possible consultation) on changes to the residence and domicile rules affecting the taxation of individuals. A report was to have been released before the pre-Budget report 2002 but this did not materialise.

Although no consultation has yet taken place, the Government has now released a document entitled: &#34Reviewing the residence and domicile rules as they affect the taxation of individuals: a background paper&#34.

The stated aims of this paper are to:

  • describe the current rules;
  • analyse international experience; and
  • develop the principles that the Government believes should underpin any change.

In particular, the Government feels that such principles:

  • should be fair
  • should support the competitiveness of the UK economy and
  • should be clear and easy to operate

These principles give rise to a number of questions and issues, upon which the Government are now actively seeking comment from all interested parties. In particular, contributions from those most affected &#45 both employees and employers &#45 are also being sought.


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