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Residence and domicile: tax bodies call for clarity

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Tax experts who have been calling for a statutory definition of ‘residence’ for many years have welcomed proposed reforms but flagged a number of issues to be addressed.

Responding to Statutory definition of tax residence: a consultation, the ICAEW Tax Faculty said there were ‘some areas of inconsistency and uncertainty’ in the proposed three-part residence test.

Maximum clarity should be afforded by the new legislation, the Tax Faculty said, to avoid the need for ‘copious’ HMRC guidance. The CIOT agreed, calling for ‘clear and unambiguous’ legislation containing ‘all necessary definitions’.

The proposals were ‘a big step in the right direction’, the CIOT said. The three-part test would be ‘a sensible compromise’ to deal with a difficult issue.

‘We need a definition of “work” in the new rules,’ said CIOT Tax Policy Director John Whiting. ‘For example, it is currently unclear whether you are working if you are travelling to a meeting, or if you attend a social event with a colleague, or if you are merely thinking about work. Would a three hour meeting on one day followed by a working breakfast and a journey back to the airport on the next count as two working days?’

The Law Society of England and Wales said an individual should be able to elect to be treated as resident in the UK in a particular tax year. It suggested fewer ‘day count’ thresholds and an 'exceptional circumstances' provision to apply where the taxpayer is prevented from leaving, or required to be present in, the UK for reasons beyond their control.

The proposed residence test

The Tax Faculty submitted that:

  • the day limits in Part A are too short;
  • there needs to be a simplified procedure for individuals who are dual resident and treaty resident outside the UK’
  • the concept of ‘home’ in Part B is too subjective and should be replaced by ‘accessible accommodation’;
  • there is double-counting and circularity in the connection factors in Part C;
  • the definition of full-time working abroad should permit an individual to be both employed and self-employed to satisfy the rule, and the 35 hour working week requirement is too rigid;
  • the definition of a ‘working day’ is unrealistic and in part unworkable;
  • the definition of a family should only include minor children for whom the individual has parental responsibility;
  • the requirement to have regard to the number of days a parent spends with a minor child should be removed; and
  • days spent in the UK because of exceptional circumstances beyond an individual’s control should be disregarded.

Source: Tax Faculty representation TAXREP 48/11


Ordinary residence

The Faculty welcomed the proposed new approach to ‘ordinary residence’ but said the new definition was ‘not satisfactory’.

The Law Society noted the proposed definition [set out in para 6.16 of the consultation document] ‘that individuals who are resident in the UK should be treated as ordinarily resident unless they have been non-resident in the UK in all of the previous five tax years, and that the status of being not ordinarily resident should be available in the tax year in which the individual arrives in the UK and for a maximum of two full tax years following the tax year of arrival’.

It was not clear, it suggested, how these two elements were compatible as ‘in the two tax year period, the individual will have been resident in the UK in some of the previous five tax years’.

The CIOT suggested that in the longer term the concept of ordinary residence should be abolished.

John Whiting said the term caused confusion and was difficult to operate: ‘It should not be needed in a modern residence system, though there is a need for careful consideration to ensure no unintended hardship is created by it being abolished.’


‘The condoc seems to be saying that the authors are satisfied with the existing [remittance basis] rules. The CIOT is not.’

Proposed changes to the taxation of individuals who are not domiciled in the UK may not be compliant with European law, the Tax Faculty said.

Responding to Reform of the taxation of non-domiciled individuals: a consultation, the Faculty welcomed most of the proposed measures but said much could be done to simplify the existing rules in FA 2008 Sch 7. The CIOT said the consultation document seemed to be saying that ‘the authors are satisfied’ with the existing rules. ‘The CIOT is not,’ it said, adding that even the most experienced tax advisers describe the legislation as ‘impenetrable and impractical’.

The proposed increase in the remittance basis charge to £50,000 after 12 years of residence will be ‘acceptable although not welcomed,’ the Tax Faculty said. ‘We do not envisage this will cause a major change in an individual’s behaviour.’

The government had said it believed that non-domiciles who ‘have been here the longest, enjoying the benefits offered by the UK’s economy and society, should make a greater contribution than the current £30,000 charge to reflect their closer connection to the UK’.

Budget 2011 announced that overseas income and capital gains remitted to the UK for the purpose of commercial investment in UK business would no longer be liable to UK tax. The Faculty welcomed the aim to make the rules ‘free of unnecessary restrictions and simple to use’. But it suggested some changes to the proposed definitions and anti-avoidance provisions.