What is the difference between residence and domicile

This is a question which often comes up, perhaps unsurprisingly as domicile is a very British concept and is not recognised by most of the world.

For UK tax purposes, residence and domicile are two very different concepts but both have a big impact on your tax position in the UK.

Residence

This is determined by the Statutory Residence Test (SRT) which looks at a series of tests and the number of days you spend in the UK each year, as well as certain connections you have with the UK.

Depending on the circumstances, this can be a very complicated process. There are over 100 pages of guidance notes on the SRT alone!

Your tax residence is very important as UK residents are, generally, liable to UK tax on their worldwide income and gains. Whereas, long-term non-UK residents are, generally, only subject to UK tax on their UK source income, plus on taxable gains from the disposal of certain UK assets, including residential property.

Domicile

Your residence status could theoretically change every year; however, domicile is a more long-standing concept and is generally far more difficult to change.

In most circumstances, you will be domiciled in the country you consider to be your permanent home.

For example, an individual born and raised in Switzerland, will likely remain domiciled in Switzerland (or a “non-dom” for UK purposes), even if they move to London to work for 10 years.

Domicile is a highly complex subject and it is strongly recommended to seek advice in this area.

There are significant benefits associated with being non-domiciled in the UK, including the ability to shelter income and gains arising outside of the UK from UK taxation. In addition, UK inheritance tax (IHT) exposure can be limited to UK assets only.

In order to take advantage of these tax breaks, careful planning is needed.