As a non-UK domiciled individual is likely to have retained strong ties to her home country, it is possible that she may be treated as being resident in that country, as well as being resident in the United Kingdom.
This possibility is particularly strong in the first and last years of her UK residence. For example, if she arrived in or departed the UK partway through the tax year, and split-year treatment applies, she would be treated as resident in the UK for a part of the tax year of arrival or departure. At the same time, depending on the rules in the other country, she could be also be treated (under those rules) as resident there, for all or part of the tax year.
Individuals resident in the United Kingdom are subject to UK tax on their worldwide income. If this rule also applies in the other country, our taxpayer could find herself doubly subject to worldwide taxation.
This issue could be resolved if there is a tax treaty between the United Kingdom and that other country, and if that treaty contains a provision addressing dual residence of individuals.
A treaty would generally contain a tie-breaker rule that would resolve the dual residence in favour of one or the other contracting state. Most treaties pattern their rules on the OECD Model Tax Convention. However, some treaties contain minor variations from the Model.
I have yet to come across a treaty without a tie-breaker rule for dually resident individuals. (Dually resident entities are a different matter, however. See, for example, the Kosovo-Luxembourg treaty – no tie-breaker for persons other than individuals.)
So, if there is a treaty between the UK and the other country, chances are high that there will be a tie-breaker rule in there.
But what if there is no treaty?
Without any express relieving provisions in domestic law, the dual residence issue would not be resolved. As a consequence, if both countries impose worldwide taxation on their residents, our taxpayer would be facing this from both ends.
In such a case, a UK-resident but non-UK domiciled individual might consider using the remittance basis. This would keep her non-UK income and gains out of reach of the UK taxman. The foreign income and gains will only be taxed by the UK if ‘remitted’ to the UK.
However, her UK-source income and gains are another matter altogether. The UK is fully within its rights to tax those. Same also for the other country, as it would be applying its worldwide taxation rules. Unless there is some relieving provision from that country, the UK-source income and gains could face double taxation.
This situation is extremely complex, and the absence of a treaty makes it even more so. Dual residence is best resolved by a tax treaty. Domestic law goes only so far.
(Photo by Arpit Rastogi on Unsplash)