I’m an EU national with settled status in the UK but I don’t have a property in Europe at the moment and due to Covid I haven’t been back for two years. Is this likely to lead to a domicile review from HM Revenue & Customs?
Liz Cuthbertson, a private client tax partner at accountants Mercer & Hole, says the UK statutory residence rules allow a person to be resident in the UK for 15 years before being deemed domiciled in the UK for tax purposes. However, a person can acquire a domicile in the UK much sooner if he or she intends to remain in the UK permanently.
With no footprint in Europe, an EU citizen with settled status may have a UK domicile, but this is not solely due to settled status. Domicile considers a person’s whole life.
Following the UK’s departure from the EU, freedom of movement to the UK ended in December 2020. In readiness for that, many individuals applied for settled status in the UK. This is an immigration legal matter. If granted, settled status gives a person the right to live, work and remain indefinitely in the UK. It does not necessarily mean the person will remain permanently, in the sense of forever, in the UK or indeed that they intend to do so.
Domicile is a legal term, essentially referring to a person’s homeland. A domicile of origin is acquired at birth and generally continues unless it is abandoned for a domicile of choice elsewhere. If the domicile of choice is later abandoned, the domicile of origin revives unless another choice is acquired. The choice is evident if the person has an intention to remain permanently in the UK, including whether there is no realistic contingency that they will leave.
Many factors can be taken into consideration, including the location of the principal home, family and business interests. Length of time spent in the UK is a factor but even a very short period of time in the country can result in it being deemed a domicile of choice, if sufficient facts suggest the UK is the dominant and prevailing home and will remain so in all senses. After 15 years of UK residence, an individual becomes deemed domiciled for tax purposes.
A person who is neither domiciled nor deemed domiciled in the UK gains some tax advantages and genuine preservation of non-UK domicile can be very valuable. The statutory residence rules were introduced to give clarity over residence and are not likely to change.
Domicile can be a grey area and therefore anyone making a settled status application should ensure they are clear about where they understand themselves to be domiciled. They should be able to demonstrate connections to the place of asserted domicile. Written domicile statements can be very useful as they provide evidence of a person’s intentions at a point in time.
How can I minimise tax when buying a UK house from abroad?
My family and I will be returning to the UK from Singapore, having lived there for three years. We are looking to purchase a property in central London for our return. I understand that when buying a UK home from abroad I would be exposed to certain taxes and liabilities. What’s the best way to minimise this?
Lucy Barber, partner and head of residential property at law firm Forsters, says when buying your property the two taxes likely to have the greatest impact are stamp duty land tax (SDLT) and inheritance tax (IHT).
Stamp duty is payable on completion of your purchase. There are two rates tables of stamp duty: the lower rates and the higher rates for additional dwellings. The latter attracts an additional 3 per cent surcharge.
As you are not currently a resident in the UK you will pay a surcharge of 2 per cent on top of whichever rates table applies to you if you currently own other property anywhere in the world and your new home that you are purchasing is not replacing your previous main residence (which needs to have been sold in the previous three years).
You may however, be able to claim a refund of the 2 per cent surcharge. If you stay in the UK for at least 183 days in the 12-month period immediately following your purchase you can apply to HMRC for such a refund.
You may be buying your new property as your main residence but still own your previous one in Singapore. If that is the case, and you sell your previous main residence within three years of your purchase, you may claim a refund of the 3 per cent charge.
Once you have purchased your property you will also be liable to pay IHT on your UK property at a rate of 40 per cent, payable on your death. This is a tax that affects UK and non-UK residents alike.
There are ways to mitigate the amount of IHT payable. For example, if you take out a mortgage or some other third party loan to purchase the property, the amount of the loan will be deducted from the value of your property before IHT is charged. The mortgage must, however, be taken out and used as part of the funds for purchase.
If you buy the property and later take out a mortgage, IHT will typically be payable on the full value of the property and the loan amount will not be deducted. The loan does also need to be from a third party, as there are complex rules where the loan is from a relative or other connected person.
You could also take out a life insurance policy, often taken out at a value equal to that of the mortgage debt, and as long as it is written in trust for specified beneficiaries the proceeds will not form part of your estate for IHT purposes.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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