ACCA Advanced Taxation (ATX) Practice Exam

In the context of tax, what does “deemed domicile” mean?

1. A tax status based on marital status

2. A tax status based on residency duration

3. A status applied to non-residents

4. A classification for corporate entities

The correct answer is: A tax status based on residency duration

Deemed domicile is a tax status that arises primarily from an individual's residency duration in a jurisdiction, particularly in the UK tax system. This status applies to individuals who may not be domiciled in the conventional sense but are considered deemed domiciled after residing in the country for a specific number of years, typically 15 out of the last 20 years. Once a person is deemed domiciled, they become liable to pay tax on their worldwide income, similar to those who are actually domiciled in the country. This concept is particularly significant for individuals who may originally be from another country but have lived in the UK for an extended period. While they may consider their permanent home to be elsewhere, the tax rules require them to be taxed as if they are domiciled in the UK due to their long-term stay. This rule ensures that the tax system captures individuals who have effectively integrated into the tax system through their residency. The focus of deemed domicile makes options related to marital status, classification of corporate entities, or non-resident status less relevant in this context. These other options do not accurately reflect the significance of duration of residency in determining one's tax obligations under deemed domicile provisions.