What Is A Residence & Domicile Enquiry?

Gary Green
Gary Green
May 23, 2024

Questions regarding domicile and residence have significant effects on taxes that are payable and due in the UK, whether those taxpayers are companies or individuals. Furthermore, as the penalties for any offshore errors being as high as 200% in some cases, a successful HMRC challenge can come at a very high cost. It is therefore crucial to understand the differences between these terms and what they actually mean in terms of taxation.

Residence Or Domicile?

The terms “residence” and “domicile” may be confused with one another, but in fact they are very different.

The term resident is used in the United Kingdom to refer to an individual who lives in the country or spends the majority of their time there. With regard to “tax residence” routinely, HMRC begins by taking into account every tax year, and this means that an individual’s status for tax residence may change effectively in different tax years.

This kind of investigation is usually very intrusive and details, involving HMRC regularly requesting significant volumes of private data to support their case.

The term “domicile” may seem to mean the same thing as “residence” but in fact it does not.

Individuals are generally domiciled in a country at birth, with HMRC viewing this as challenging to change without certain conscious and clear things being done. Further complications to the position come from the fact that, generally, an individual will usually acquire their father’s domicile location and status.

For taxpayers who are resident in the UK but domiciled abroad, this brings some advantages in terms of tax. However, this may also bring an additional risk of investigation by HMRC.

What Happens If HMRC Opens An Enquiry Into Domicile Or Residence Status?

It is fair to say that any enquiry into an individual’s domicile or residence position will almost always be extremely intrusive. It will require an in-depth analysis not only of your business affairs and lifestyle but even of your family connections both before and after you left the UK. It is therefore crucial to ensure that you have sufficient evidence to hand that supports your position as well as being equipped to effectively articulate all of the facts to ensure the most successful outcome.

Usually, HMRC will require a detailed analysis of all your movements before and after you left the UK. This will include copies of all diaries showing the reason and purpose for every visit. They will also want full details of overseas and UK investments and bank accounts. This will include your personal credit card and bank statements to establish where you were located on any given day. They may wish to see copies of your mobile phone bills in order to determine whether they are in line with the other data that they have obtained. Evidence such as photographs that show where your home is located overseas and whether or not it is in line with your home and lifestyle when in the UK may also be requested. You will also be required to supply details of your personal family and friends together with any information about communications with them before you left the UK.

Reaching a successful outcome to this type of investigation involves managing the fact-finding stage effectively You must, therefore, understand what you need to supply to HMRC as well as how to present the evidence and facts to them. You need to know how to carry this out effectively, and to do so, you could benefit from professional guidance from tax investigation specialists who have an in-depth understanding and knowledge of the legal powers held by HMRC to obtain documents and information from both you and your third parties such as your customers, suppliers, advisers, and banks. It is vital to ensure that the evidence and facts are managed correctly since the tax inspector uses the information you present to HMRC to determine whether or not HMRC will accept that you were or are non-resident in the UK for purposes of tax.

Domicile And Residence Tax Investigations

If HMRC reviews an individual’s domicile or residence status, their highly trained team will usually focus on assets or income abroad that could potentially result in a tax liability in the UK should those assets or income be within the country or, alternatively, owned by someone who was domiciled and resident in the UK.

In the cases of companies, things are somewhat different since companies do not have a “domicile” status to impact their tax liabilities. But companies may be “non-resident” and this may have a significant impact on how much tax the company must pay. Like with individuals, if a company is “non-resident” it may reduce or even entirely extinguish its tax liability.

Since these areas of taxation are especially complex, it makes sense to consult at an early stage with a tax investigation specialist if you are facing a potential HMRC investigation or a challenge to your domicile or residence status.

How Can A Tax Investigation Specialist

A professional tax investigation specialist will be able to offer you the expert help you need if you become involved in a tax enquiry into your residence or domicile status. They will have detailed and recent experience of handling this type of HMRC enquiry and will have a comprehensive knowledge and understanding of each stage of the process, so they can ensure the most coherent strategy is agreed on from the beginning of the process. They will have detailed knowledge of the internal processes used by HMRC as well as their powers under the law to obtain information and documentation and will be equipped to articulate all of the facts correctly when presenting evidence to HMRC.

If you find that you are facing this type of tax investigation, it is absolutely vital that you seek professional help from experts. Using the services of a skilled and experienced team will ensure that you enjoy the best possible outcome from this situation and avoid any negative financial consequences for yourself.

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