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What gets taxed where

Updated: Oct 21, 2021

People are very clever at playing with words and manipulating the answers to twist the law to work in their favour! The debate between Residence and Domicile is one of these instances. Naturally, the law drafters are just as clever as the law twisters so we end up with detailed definitions and rules around everything.

For UK tax purposes if you are resident in the UK you pay tax in the UK and if you are not resident in the UK you might STILL pay tax in the UK. Any income from a source IN the UK will be subject to tax IN the UK. However, you might be a UK resident with foreign income that might NOT be taxed in the UK.

If that sounds complicated that’s because it is! The permutations of all this are not for the feint hearted and careful analysis and the right answers are key to helping you keep as much of your hard earned money as possible.

Determining your UK residence is based on 3 tests:

1. Automatic overseas;

2. Automatic UK; and

3. Sufficient Ties

Each of these has a number of other tests and include day counting and split years (which, in itself, has EIGHT different criteria)!

Once you and HMRC agree on where you are resident then you both need to agree on where you are “domiciled”! Here, there are 3 types of domicile:

a. Origin

b. Choice

c. Dependence

And then, of course, you can be “DEEMED” to be domiciled in the UK for tax purposes.

All of this because the world we live in allows us to move around relatively freely and to invest even more freely. Those of us who have moved to the UK are likely to have some sort of income earning asset left in the SA and that’s when this whole residence/domicile debate comes into it’s own!

Essentially if you are:

i. Resident and domiciled in the UK you are subject to UK tax on everything everywhere;

ii. Resident but NOT domiciled in the UK then your foreign income MIGHT NOT get taxed in the UK;

iii. Not resident in the UK then your foreign income is NOT TAXED in the UK.

I said earlier that if you are resident in the UK you pay tax in the UK. Quite simply, all your worldwide earnings get put into one big taxing basket and divvied up slightly differently with you keeping the residue. Sadly, the South African revenue authorities also want their slice of your action so if you have earnings there you need to submit a tax return there too.

The one upside to all this is that both Revenue authorities acknowledge that it would be unfair for you to be taxed on the same income twice so they have an agreement in place that lets you offset tax paid in one place against tax payable in the other place.

The solution to all this – well, there isn’t one really. You can only avoid paying taxes by not earning any income, in which case the Durban beachfront is quite popular. However, if you DO have multiple income streams, you want to try to keep as much of those earnings as possible. And that’s where you need us! We specialise in helping you keep what’s yours, all the while still staying legal - so contact us and we will guide you through this minefield.

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