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We begin with some preliminary but altogether necessary points. First, the law governing British nationality and British citizenship is extremely complex, and the present discussion constitutes merely a simplified summary of the subject. Second, although the terms 'Britain' and 'United Kingdom' (UK) refer to two distinct objects (a geographical region and a political association, respectively), 'British citizenship' and 'UK citizenship' are themselves equivalent and should be read that way. Third, the terms 'nationality' and 'citizenship' refer to separate but related categories of recognized legal status. In general, 'citizenship' implies the possession of rights not available to non-citizens, for example, the rights to employment and permanent residence (free of immigration controls) within the territory of a political state. Non-citizens may at times be granted permission to live and work in the same state, but this is a matter of privilege, not right. Nationality, on the other hand, is, in the UK at least, a question of birth. Indeed, in the UK, those deemed British 'nationals' by birth have by far the easiest path to securing British citizenship. Nevertheless, there are relatively few privileges associated with British 'nationality' per se.
There are six 'classes' of British nationality recognized in UK law, namely, that possessed by: (i) (full) British citizens; (ii) British Overseas Territories citizens (formerly British Dependent Territories citizens); (iii) British Overseas citizens; (iv) British subjects; (v) British Nationals (Overseas); (vi) British protected persons. These are set out in the British Nationality Act (1981) and sundry amending Acts, most recently the British Overseas Territories Act (2002).
A (full) 'British citizen' possesses this status by virtue of a recognized connection, most typically either birth or naturalization, to the United Kingdom, the Channel Islands and the Isle of Man. This constitutes the most common form of British nationality, and the only one carrying a guaranteed right of residence in the UK. Still, some of the rights associated with this category may vary according to how this form of nationality is acquired. For instance, there are restrictions on transmission of (full) British citizenship to children of 'British citizens by descent' born outside of the UK. Note here that residents of the Channel Islands (i.e. Jersey and Guernsey) and the Isle of Man are considered (full) British citizens, notwithstanding that these territories have a different constitutional relationship with the UK and are classed as 'Crown Dependencies'. The principal justification is that they remain squarely under the sovereignty of the British Crown, much unlike the member-states of the Commonwealth of Nations, who have formed a purely voluntary association based on their (largely) historical ties to the UK (or, more precisely, the British Empire).
'British Overseas Territories citizens' constitute a class of British nationals defined by their connection to existing overseas British territories. Nearly every person in this category is now also a (full) British citizen by virtue of the British Overseas Territories Act 2002. However, it is still possible for members of this class of nationality to hold British Overseas Territories citizenship and (full) British citizenship simultaneously. The British Overseas Territories make up fourteen former colonies that have not (yet) achieved independence and are therefore under UK sovereignty, although not as part of the UK itself. These territories are: Anguilla, the British Antarctic Territory, Bermuda, the British Indian Ocean Territory, the British Virgin Islands, the Cayman Islands, the Falkland Islands, Gibraltar, Montserrat, St Helena and Dependencies (i.e. Ascension Island and Tristan da Cunha), the Turks and Caicos Islands, Pitcairn Island, South Georgia and South Sandwich Islands, and the Sovereign Base Areas on Cyprus. (Note that claims of sovereignty over territory in Antarctica, including that of the UK, are not universally recognised by other countries.)
'British Overseas citizens' are former 'citizens of the United Kingdom' during British colonial rule who did not, upon their country's accession to independence, qualify for (full) British citizenship or British Dependent (now 'Overseas') Territories citizenship. Members of this class of British nationality do not have an automatic right to live in the UK. British Overseas citizenship is held by a still sizeable but constantly shrinking number of people living Kenya, Malaysia and Singapore. Indeed, this form of citizenship constitutes a residual category of British nationality in that (i) little provision remains for obtaining this category of citizenship, and (ii) the passage of time will inevitably result in this category's extinction. However, when Hong Kong reverted to (mainland) Chinese rule in 1997, British Overseas Territories citizens who had not applied for the status of British National (Overseas), and who were not already considered Chinese citizens by the government of China (such as Indian and other non-Chinese residents), were granted British Overseas citizenship.
The British Nationality Act (1981) defines 'British subject' as anyone formerly considered a 'British subject without citizenship'. This class of British nationality applies, for instance, to native populations of British India or the Republic of Ireland as they existed before 1949. Upon the Act's coming into force (in 1983), every citizen of the UK and its colonies became either a (full) British Citizen, a British Dependent (now 'Overseas') Territories Citizen or a British Overseas Citizen. The use of the term 'British subject' was discontinued for anyone falling into one of these three categories, or anyone possessing national citizenship from any other part of the Commonwealth. In statutes passed before 1 January 1983, however, references to 'British subjects' continue to be read as if they referred to 'Commonwealth citizens'. The status of British subject cannot be transmitted by descent to one's children, and will become extinct once all remaining British subjects have died.
The status of British Nationals (Overseas) did not originally exist under the 1981 Act, but was created by the Hong Kong Act (1985) and the British Nationality (Hong Kong) Order (1986) to deal with problems connected to the 1997 reversion of Hong Kong to (mainland) Chinese sovereignty. This class of British nationals is composed of former British Dependent Territories citizens who applied for the status of British National (Overseas) before the 1997 handover. Those who did not apply, and who did not gain nationality from the People's Republic of China following its reversion, became British Overseas citizens if they did not have any other nationality.
'British protected persons' come from those regions of the (former) British Empire that were not officially part of the Crown's dominions but rather protectorates with nominally independent rulers under the 'protection' of the British Crown. The form of British nationality to which they lay claim is (again) a product of the British Nationality Act (1981). However, it is 'nationality' in the thinnest sense, since its members are neither full-fledged British citizens, nor citizens associated with British colonial or territorial rule; but they are not aliens either. British protected persons do have certain rights in the UK that remain unavailable to complete aliens, but the range of benefits is relatively narrow. For example, because they are not aliens, British protected persons are eligible for various sensitive public positions, including jobs with the armed forces and the civil service. However, British protected persons cannot vote in UK elections.
The rule is that a person, upon his birth, is automatically a (full) British citizen if: (i) at least one parent is settled in Britain; or (ii) at least one parent is a (full) British citizen (where the child is born and domiciled overseas). Note that inheritance of British citizenship does not continue with each successive generation born overseas. For instance, the grandchildren of British expatriates born overseas to parents who were themselves born overseas are not automatically (full) British citizens (although there are cases where this rule would be judged inapplicable, e.g. with successive generations of parents employed by the armed forces who all happened to have been posted outside of the UK). On the other hand, children of settled, non-citizen parents born in the UK automatically become British citizens. Lastly, one does not acquire an automatic right to citizenship by way of marriage, although this does make the process of naturalization relatively easier than in the standard instance.
Those not born a (full) British citizen may become one in a number of ways: First, he may be adopted by a (full) British citizen, thus making him one. Second, he may be 'registered' as a (full) British citizen. Here, the Secretary of State has a discretion to register any minor and make him a (full) British citizen. In addition, members of certain classes of British nationals (e.g. British Overseas Territories citizens) have a statutory right to be so registered (whether they are a minor or an adult), thus elevating their status to full citizenship. Members of other classes, though, must satisfy certain criteria before any such an elevation may take place. Third a person may be 'naturalized' as a (full) British citizen. To obtain citizenship through naturalization one must normally satisfy four criteria: (i) be competent in a language spoken in the UK (i.e. English, Welsh, or Gaelic); (ii) be of 'good character', which generally means having no serious criminal convictions; (iii) have been a resident for at least five years continuously (although there are complex rules here about what 'continuously' means); (iv) intend to make a permanent home in the UK.
Any British citizen may renounce his citizenship, which, when it happens, is usually for the purpose of taking up citizenship elsewhere. One may even 'renounce the renunciation' and re-establish his citizenship, but only once. Those who have become citizens through registration or naturalization may later be deprived of their citizenship, but generally only for egregious criminal acts.