When do you have to pay taxes in the UK on your worldwide income?
There are two concepts that determine the tax liability in the UK – tax residence and domicile.
Once you have become a UK tax resident you normally have to pay UK taxes on all your income, whether it is from the UK or abroad. Therefore, even if your foreign income and gains have already been taxed in another country, they will still be taxable in the UK and you must declare all of your foreign income and gains on your tax return. Non-residents usually pay taxes only on their UK income and do not pay UK tax on their foreign income.
Whether or not you are domiciled in the UK may affect what UK tax you pay on any foreign income and gains during a tax year. This is relevant for Income Tax (IT) and Capital Gains Tax (CGT) purposes. If you do not have foreign income and gains then your domicile status has no bearing on your UK IT and CGT position and you do not need to consider it. Your domicile status may also be relevant for Inheritance Tax (IHT) purposes.
If you are a UK resident but are not domiciled in the UK, you may have to pay UK tax on any income and gains which arise or accrue here. You can choose to pay tax on your foreign income and gains using the remittance basis of taxation. When you’re eligible and choose to use the remittance basis, you will be liable to UK tax on:
all of your UK income and gains as they arise or accrue each year
your foreign income and gains if and when you bring (remit) them to the UK, including any property which derives from those income and gains
The concept of the UK tax residence is quite complex and tricky. Previously it was determined mainly by case law but from 6 April 2013 and onwards a statutory residence test (SRT) applies.
The SRT takes into account the amount of time a person spends and, where relevant, works in the UK and the connections they have with the UK. The SRT is split into the following parts:
automatic overseas tests (there are 3 tests to consider)
automatic UK tests (there are 3 tests to consider)
sufficient ties test (a family tie, an accommodation tie, a work tie, a 90-day tie, a country tie)
application of the SRT to deceased persons
[For more details on tax residence and SRT see UK Tax Questions and Answers. Global Guide 2018 – 2019 of Dr Clifford J. Frank, LLM, PhD, pages 158-164, 165-166.]
If you’ve been in the UK for 183 or more days, you will be a UK resident. There is no need to consider any tests. If you have spent less than 183 days in the UK then you will be a UK resident in a tax year and at all times in that tax year if:
you do not meet any of the automatic overseas tests
you meet one of the automatic UK tests or the sufficient ties test.
Just because you are no longer a UK resident that does not mean you are no longer UK domiciled. Domicile may affect not your inheritance tax (IHT), income tax (IT) and capital gains tax (CGT) liabilities.
Your domicile status is decided under general law, which means it must be interpreted according to previous rulings of the courts. There are many things that affect your domicile. Some of the main points are:
you cannot be without a domicile
you can only have one domicile at a time
you’re normally regarded as domiciled in the country where you have your permanent home
your existing domicile will continue until you acquire a new one
your domicile is distinct from your nationality, citizenship and your residence status, although these can have an impact on your domicile
There are 3 types of domicile:
Domicile of origin. You normally acquire a domicile of origin from your father when you’re born. It is often the country in which you were born. However, if you were born in a country and your father was not domiciled there at the time you were born, then your domicile of origin may be your father’s country of domicile.
Domicile of dependence. Individuals that are legally dependent on another person generally acquire that person's domicile. Dependent persons are unmarried children under the age of 16 and mentally disordered persons. Until you have the legal capacity to change the domicile, it will follow that of the person on whom you are legally dependent. If the domicile of that person changes, you will automatically acquire the same domicile.
Domicile of choice. You have the legal capacity to acquire a new domicile at the age of 16. Broadly, to acquire a domicile of choice, you must leave your current country of domicile and settle in another country. When you reach 16, you will acquire a domicile of choice if you are already living in a country other than that of your domicile of origin and intend to remain there permanently or indefinitely.
There is also a concept of deemed domicile that applies from 6 April 2017. An individual who is not domiciled under English common law will be treated as domiciled in the UK for tax purposes if they meet 1 of 2 conditions. Condition A – the individual was born in the UK; their domicile of origin was in the UK and the individual was resident in the UK from 2017 to 2018 or later years. And condition B – the individual has been a UK resident for at least 15 of the 20 years immediately before the relevant tax year.