Tax Residency vs. Domicile: Not the Same Thing
It’s easy to mix up tax residency and domicile, but they are legally distinct concepts — and they carry very different tax implications.
Tax Residency
Refers to the country where you live or stay during a tax year and where you’re liable to pay tax on income (either UK-only or worldwide, depending on your status).
Domicile
Is about your long-term or permanent home — the country you consider your ultimate base or intend to settle in permanently, even if you’re currently living elsewhere.
In the UK, there are three main types of domicile:
- Domicile of origin – usually acquired at birth (often your father’s domicile at that time)
- Domicile of dependence – changes if you’re legally dependent on someone whose domicile changes
- Domicile of choice – established by moving to another country with the clear intention to live there permanently
Why It Matters
You can be UK tax resident but non-UK domiciled, which may entitle you to special tax treatment — specifically the “remittance basis”. This allows you to only pay UK tax on foreign income and gains if they are brought (“remitted”) to the UK.
This can be especially beneficial for individuals with significant foreign income or offshore investments.
Do You Need to Pay Tax in the UK If You’re Not a Resident?
If you’re not classed as a UK tax resident, your UK tax obligations are generally limited to UK-sourced income. In most cases, this means:
You do not pay UK tax on:
- Foreign income (such as overseas salary, dividends, interest, or rental income)
– unless it relates to UK duties or is remitted under certain rules
But you do pay UK tax on:
- UK rental income (from property you own in the UK)
- UK employment income (if you physically perform the work in the UK)
- Dividends from UK companies (though this may depend on your personal circumstances and double tax treaty relief)
For example, if you’re a non-resident director of a UK company, you may still owe tax on your UK dividends — but how much, and where, depends on your tax treaty position.
Tax Residency and UK Limited Companies
Even if you’re not a UK tax resident, your UK limited company may still be classed as UK tax resident — and that has important implications.
When is a company considered UK tax resident?
A company is generally considered UK tax resident if:
- It is incorporated in the UK, or
- It is centrally managed and controlled from the UK — for example, if strategic decisions are made by directors in the UK
Note: “Management and control” refers to where key decisions are made, not where day-to-day operations happen.
What This Means in Practice:
- The company must pay UK Corporation Tax on all its profits — including worldwide income if the company is UK resident for tax purposes.
– The current Corporation Tax rate is 25% for companies with profits over £250,000 (as of April 2025). - Non-resident directors may still have personal tax responsibilities:
- If they receive dividends, they may be liable for UK Dividend Tax, unless a Double Taxation Agreement (DTA) prevents it
- They may also need to declare the dividends or director’s fees in their country of residence for personal income tax purposes
- In some cases, if a company is incorporated abroad but effectively managed from the UK, HMRC may still treat it as UK tax resident, which can lead to unexpected UK tax liabilities.
How Tax Residency Affects Your Tax Return
Your tax residency status determines what you must report to HMRC — and whether you’re entitled to relief on foreign taxes you’ve already paid.
Depending on your situation, you may need to:
- Report overseas income – including foreign interest, dividends, rental income, pensions, and capital gains
- Claim Foreign Tax Credit Relief – to avoid double taxation if you’ve already paid tax on the same income abroad
- Adjust your tax code or apportion income – if you’re classed as split-year resident, meaning you were only UK resident for part of the tax year
If You’re a UK Tax Resident:
You must declare worldwide income on your Self Assessment tax return, even if:
- The income is held overseas
- You’ve already paid tax on it in another country
Example:
If you’re a UK tax resident and receive rental income from a property in Spain, you must report it to HMRC.
You may be able to claim relief if you’ve already paid Spanish tax on that income.
If You’re Not a UK Tax Resident:
You typically only need to report UK-sourced income, but:
- You may still owe UK Dividend Tax on dividends from UK companies
- You should check if a Double Taxation Agreement (DTA) with your home country reduces or eliminates this liability
Example:
A non-resident who owns shares in a UK company and receives UK dividends may still need to report them to HMRC — or apply for DTA relief if eligible.
What About Double Taxation?
The UK has tax treaties with many countries to prevent the same income from being taxed twice. These Double Taxation Agreements (DTAs) can:
- Exempt certain income from UK tax
- Reduce the tax rate you pay on UK income (e.g. interest or dividends)
- Allow tax relief in your home country for UK tax already paid
To benefit, you may need to claim relief through HMRC by submitting the appropriate form (like a DT-Individual or DT-Company form), depending on your situation.
Learn more about the UK’s Double Taxation Agreements on GOV.UK
When Should You Seek Advice?
Understanding your tax residency status — and its consequences — can be complex, especially if you have ties to more than one country. You should consider seeking professional advice if:
- You’re moving to or from the UK and unsure how it affects your residency
- You own overseas assets or receive foreign income (e.g. rental income, dividends, or pensions)
- You’re not sure whether to report foreign income on your Self Assessment
- You may have dual tax residency, meaning two countries could claim taxing rights over the same income
Getting it wrong can result in:
- Missed tax reliefs (such as foreign tax credits or DTA claims)
- Unexpected tax bills or double taxation
- Penalties and fines for failing to report income correctly
Even if you’re confident in your situation, professional guidance can help ensure you’re fully compliant while maximising tax efficiency.
How Accounting Wise Can Help
Understanding what is tax residency is crucial for staying compliant and making the most of tax reliefs—especially if your personal or business affairs span multiple countries.
At Accounting Wise, our expert team can:
- Assess your UK tax residency position
- Help you declare the right income on your Self Assessment
- Ensure you claim relief under double taxation agreements
- Support expats, landlords, and overseas directors with tailored advice
Whether you’re living abroad, working remotely, or splitting your time between countries—we can help you keep everything above board with HMRC.
