Do you know where you are a tax resident and your country of domicile?
It is essential to know the tax rules of these concepts and their impact on where you live. Understanding the tax rules can help you save money and ensure you pay the correct amount of tax in the proper jurisdiction to avoid penalties and fines.
It can also help ensure that your estate passes in the event of death.
There are many countries with simple residence tests based on the number of days you spend in that country. If you exceed the number of days, you pay Income and Capital Gains Tax on your worldwide assets. If you don’t exceed the days, you may only have to pay Income and Capital Gains Tax on the assets located in the country.
It is possible to be resident in more than one jurisdiction. If this is the case, then the Double Tax Convention between the two countries (if there is one) comes into play, and a tie-breaker test is involved in determining residency and where you should pay tax.
It is also possible to be resident in no jurisdiction at all.
The UK, for example, has a complex statutory residence test. We can advise you on this and further advise you on any Double Tax Convention should it be needed. This is to ensure you are paying the right amount of tax in the right jurisdiction.
This analysis can also be used for planning purposes to ensure you tie your repatriation back to the UK, or elsewhere, in the most tax-efficient manner.
Whilst Income Tax and Capital Gains Tax are determined by residence, in the UK, it is domicile that governs what assets are liable to Inheritance Tax.
It is essential to understand that some other jurisdictions do not recognise the concept of domicile and therefore base their Inheritance Tax or Gift Tax on other factors that may include nationality, citizenship or other influences.
Where you find yourself liable for Inheritance Tax or Gift Tax in more than one jurisdiction, the Double Tax Convention may be able to assist.
Legal domicile is a convoluted concept, and it is vital for our specialist to understand your history. Everyone is born with a domicile of origin, which can then be displaced. However, that displacement might not simply be moving to another country as some think.
Understanding your domicile is essential before looking at any estate planning.
Legal domicile may also impact forced heirship rules and who inherits your estate on death. In connection to legal domicile, there is also a deemed domicile category in the UK. This category is for individuals who have lived there for a certain period. For tax purposes only.
We can advise you on your domicile or deemed domicile status, so you know your obligations before undertaking any planning.