When reading exam questions, it is important to allow yourself to think so you can understand where the question is going. If you are able to see the ‘destination’ the examiner is heading to, it becomes easier to anticipate the tax implications.
One popular area in the Advanced Tax / BPT exams involves UK-domiciled individuals going abroad for a few years.
Domicile is your permanent home and is acquired at birth from your father. If the parents are unmarried, your domicile of origin comes from your mother.
The non-resident individual remains UK-domiciled unless the individual acquires a domicile of choice in a different country by severing all ties to the UK. This could be done by disposing of all assets and business interests in the UK and acquiring a permanent residence abroad.
Typically, most exam questions will indicate that the individual has not acquired a domicile of choice outside the UK.
Once abroad, UK income is still taxable but overseas income escapes UK tax. The personal allowance is still available even if non-resident. However, the remittance election is not available to UK-domiciled individuals. What this means is as long as the contract of employment abroad spans a complete tax year, any overseas income will not be taxed in the UK. This applies even if the income is remitted to the UK.
For capital gains tax, if the individual returns to the UK after less than 5 years then the temporary non-residence rules apply and any capital gains on assets acquired before leaving the UK are taxable in the tax year the individual returns to the UK. The annual exemption can be claimed.
Finally, for inheritance tax, the individual remains UK domiciled for a further 3 years after leaving the UK, so is still taxable on worldwide assets including the gift of overseas assets whilst non-resident in the UK.
By detecting the destination of the question and explaining your rationale, the quality of your answer is dramatically improved, and you can secure enough marks to pass the question.
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