In recent years there has been an increase in the number of enquiries raised by HM Revenue & Customs (HMRC) into the domicile status of individuals, particularly those who have been resident in the UK for many years. Whilst changes to the taxation of non-UK domiciliaries (non-doms) in April 2017 means that those who are long-term residents are no longer able to claim the remittance basis, their domicile under general law is still important.
Domicile under general law
In the UK, domicile is a legal term that associates an individual with a particular jurisdiction. It is a common law concept. Broadly, for UK tax purposes an individual is domiciled in the jurisdiction which they regard as their permanent home. Domicile is distinct from nationality and residence, although these may be indicative of domicile status. Individuals cannot at any time be without a domicile, nor can they have more than one domicile at the same time.
Domicile of origin
An individual’s domicile of origin is determined at birth. It is normally governed by the father’s domicile at that time. However, if the parents are not married at the time of birth, or the father dies prior to birth, an individual’s domicile of origin is that of the mother.
A domicile of origin is difficult to abandon and will continue to apply in the absence of evidence that a domicile of choice or domicile of dependency has been acquired (see below). A domicile of origin also reasserts itself if a domicile of choice is abandoned, or a domicile of dependency ceases (unless a new domicile of choice is established at that time).
Domicile of dependency
The domicile of a dependent person follows and changes with that of the person on whom they are dependent (usually their father). Dependent persons for this purpose are children younger than 16, mentally incapacitated persons and women who married prior to 1 January 1974.
Dependent persons cannot acquire a domicile of choice by their own actions, but their domicile will change if the person on whom they are dependent changes their own domicile. When a dependent child reaches 16, its domicile of dependence can continue as a domicile of choice. This does not prevent the person concerned from subsequently acquiring a new domicile of choice, or reverting to their domicile of origin if the domicile of choice is abandoned.
Domicile of choice
A domicile of choice can only be acquired if an individual takes up residence in another jurisdiction and also acquires a fixed or settled intention to make that place their permanent or indefinite home.
A domicile of choice is abandoned when an individual ceases to be resident in the relevant jurisdiction (other than by reason of a temporary relocation). In such a case the domicile of origin will revive, unless a new domicile of choice is established elsewhere.
In practice, it is an individual’s domicile of choice that is most often the subject of an enquiry by HM Revenue & Customs (HMRC). In particular, HMRC is likely to raise questions where either:
- An individual has a UK domicile of origin and claims to have acquired a domicile of choice abroad; or
- An individual with a domicile of origin outside the UK takes up residence in the UK and appears to have settled permanently, but claims to have retained their domicile of origin.
An individual with a UK domicile of origin, and who wishes to claim a domicile of choice abroad, will need to demonstrate to HMRC that they have severed (substantially) all connections with the UK and established strong connections with a new jurisdiction. Factors that are likely to be relevant include social ties (eg membership of clubs and societies), family ties (especially with close relatives), economic factors (eg bank accounts, investments, property ownership and employment), and citizenship. Evidence that the individual intends to return to live in their country of origin is likely to prevent the establishment of a domicile of choice.
As regards individuals with foreign domiciles of origin, in order to demonstrate that they have not acquired a domicile of choice in the UK they will need to evidence an intention to leave the UK in the future. For individuals who have a settled way of life in the UK, HMRC will normally expect there to be a particular date/event which triggers departure, for example retirement or the completion of children’s education. In addition, it will be important to demonstrate ongoing connections with the jurisdiction giving rise to the domicile of origin.
Deemed domicile for tax purposes
From 6 April 2017, an individual not otherwise domiciled in the UK is treated as domiciled (deemed-dom) for income tax and capital gains tax purposes if resident in the UK during at least 15 of the previous 20 UK tax years.
For inheritance tax purposes there is a further test. In order to be deemed-dom for inheritance tax purposes, an individual must be both resident in the UK during 15 of the previous 20 tax years and resident in the UK during one of the four tax years ending with the current year. This means that a deemed-dom individual who leaves the UK for good will cease to be deemed-dom for inheritance tax purposes from the fourth full tax year of non-residence.
In addition, individuals who were born in the UK with a UK domicile of origin are treated as UK domiciled in any tax year in which they are UK resident. This is the case for income tax, capital gains tax and inheritance tax.
Why is general law domicile still important?
Many long-term resident non-doms may assume that their domicile status under general law is no longer important, by reason of them being deemed-dom for tax purposes. However, there are a number of occasions where an individual who is only deemed to be UK domiciled by virtue of long-term residency is taxed differently to someone who is actually UK domiciled, although this will not be the case for non-doms born in the UK with a domicile of origin. The following are examples:
- The capital gains tax rebasing available to individuals who became deemed-dom on 6 April 2017 only applies if the individual concerned remains non-UK domiciled under general law in the tax year in which the relevant disposal is made.
- The protections which prevent a deemed-dom settlor of a settlor-interested trust being taxed on the income and capital gains of the trust (or underlying companies) only applies if the individual has not acquired a UK domicile.
- Certain transitional rules introduced when the domicile tax rules first changed in 2008 continue to apply to deemed-dom individuals, but not to those who have acquired a UK domicile.
If you have any questions regarding your domicile status or what it means for your tax position, please contact Alexandra Britton-Davis on +44 (0)20 7841 4000, or speak to your usual Saffery contact.
Alexandra Britton-Davis, Partner