Part 1 of 4
This is the Finance Act 2023 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2024 to 31 March 2025. Candidates sitting ATX-UK after 31 March 2025 should refer to the Finance Act 2024 version of this article (to be published on the ACCA website in 2025).
This is not an introductory article: it is relevant to students coming to the end of their studies and finalising their preparations to sit the exam. It is intended to be read proactively – ie statements made should be confirmed as true by reference to the reader’s understanding of the rules or to a relevant study text. This approach will enable situations to be analysed from first principles rather than by reference to a rigid set of memorised planning points.
Liability to tax in the UK depends on an individual’s residence and domicile status, together with the location of their assets and the sources of their income. It is a tricky area and can be confusing. This article aims to clear up any confusion you may have.
This article starts with some basic rules, an understanding of which will enable you to identify the particular areas of tax affected by an individual coming to, or leaving, the UK. It then goes on to review those areas in some detail, and provides a clear set of questions to ask in order to determine an individual’s liability to UK taxes. Finally, it deals briefly with the impact of double tax relief and treaties.
Generally, the UK tax position of an individual who is tax resident and domiciled in the UK is as follows:
Similarly, the UK tax position of an individual with no links to the UK (ie someone who is not tax resident and not domiciled in the UK) is as follows:
Read the above points carefully, think about them, and recognise that they result in the following:
UK source income consists of: income in respect of UK assets, employment income in respect of duties performed in the UK, and trading income in respect of trades carried on in the UK.
UK assets include land, buildings and chattels in the UK, cash in UK bank accounts, and UK registered securities.
The rules set out above raise three fundamental questions:
This article identifies the order in which the key factors of residence and domicile should be considered when answering these questions. Overviews of the rules used to determine an individual’s residence and domicile status are set out below.
The rules governing residence are very detailed and depend on the time spent in the UK and the circumstances of the individual concerned.
Figure 1 – Determination of tax residence status
The table indicating the number of required UK ties by reference to the number of days in the UK is provided in the exam.
Normally an individual is tax resident or not tax resident for the whole of a tax year. However, in certain circumstances, the tax year of arrival and/or departure can be split. Under the split year treatment, the year is split into a UK part and an overseas part. The individual is taxed as a UK tax resident for the UK part and as a non-UK tax resident for the overseas part. This applies to both income tax and capital gains tax.
An individual’s domicile status is relevant for IT, CGT and IHT. Individuals who are not UK domiciled may be deemed domiciled in the UK for tax purposes.
A non-UK domiciled individual who comes to the UK will become UK domiciled if:
An individual who has left the UK will cease to be UK domiciled if:
There are two forms of deemed domicile status: one applies to IT and CGT and the other applies to IHT.
Figure 2 – Determination of domicile status
In order to be able to handle questions on international matters in the exam you will need to have done some methodical learning. In particular, you should be confident in your knowledge of the basic rules set out above in respect of residence and domicile.
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.