Are you resident in the UK with overseas earnings?
If you are resident in the UK but non-UK domiciled, you may be eligible for tax relief on your overseas income or gains.
Domicile is regarded as being the equivalent of a person’s ‘permanent home’ and does not typically change on a year-by-year basis. At birth an individual will obtain a domicile of origin which is based on their parents. If their parents are married and living together, this will be based on their father, otherwise it will be based on the mother.
This domicile will only change if the relevant parent acquires a new domicile whilst the child is under the age of 16 or they choose to obtain a new domicile after the age of 16. An individual’s domicile will only change if they relocate to another country on a permanent basis i.e. they do not have any intention of returning.
Long term residents of the UK can also be deemed to have a UK domicile. This will be the case if they have been resident in the UK for 15 out of the last 20 tax years.
Are you a resident in the UK for tax purposes? The default position is that you are liable to UK income tax and capital gains tax based on your worldwide income and gains. However, if you are non-UK domiciled, it is possible to make a claim to be taxed on the remittance basis in respect of any non-UK income and/or gains.
Overseas income or gains arising during a year in which you are taxed on the remittance basis, will only be taxable in the UK when they are physically ‘remitted’ to the UK.
Overseas workday relief
Overseas workday relief is a tax relief available to non-UK domiciled individuals who are resident in the UK and perform employment duties wholly or partly outside the UK. If you meet the conditions, the relief can be claimed from UK tax on the portion of your earnings relating to work performed outside the UK.
The Conditions are:
- You are non-UK domiciled throughout the tax year.
- You are resident in the UK (in accordance with the statutory residence test).
- You make a claim to be taxed on the remittance basis.
- Your UK employment duties are carried out wholly or partly outside the UK.
- You were non-UK resident in the UK three years immediately prior to becoming resident.
Any earnings relating to the overseas duties would need to be paid to an offshore bank account and remain outside the UK to avoid being treated as a remittance.
The relief is available for the first three years of UK residency, provided the above conditions are met.
Domicile, residency, the remittance basis and overseas workday relief are all complex areas of UK tax, with detailed rules and conditions. This information is intended as a summary only and we would recommend obtaining formal advice before making a claim.