At birth an individual acquires a domicile of origin. That domicile is retained until an individual abandons that country and moves to another country with the intention of remaining there permanently. That country then becomes the individual‟s domicile of choice.
Under English law the burden of proof regarding a change of domicile falls on the person alleging the change. Under English law the standard of proof is more onerous than in most civil law matters and if the question of a change of domicile had to be considered by the court the necessary elements of residence and intention have to be shown with “perfect clearness and satisfaction” to the court.
It should be noted in particular that a long period of residence in another country is not sufficient by itself to show a change of domicile. There must be an intention to remain there and there must be some evidence of this.
Once a domicile of choice is acquired that domicile is retained until that country is abandoned by the individual with the intention of never returning there. Further, once the domicile of choice is abandoned, unless another domicile of choice is immediately acquired, the domicile of origin reverts automatically even if the individual never sets foot there again.
However, once a domicile of choice has been acquired it is not lost simply because an individual subsequently changes his mind and intends to leave that country at some future date.
The UK Self Assessment system requires that taxpayers have to decide whether they are resident or ordinarily resident or domiciled in the UK and how that may affect their liability to UK tax. The previously used form DOM 1 was withdrawn by HMRC with effect from 25 March 2009. Where a taxpayer claims to a have foreign domicile, H M Revenue & Customs (HMRC) may enquire whether or not that is correct. By its nature this sort of enquiry will be an in-depth examination of the taxpayer‟s background, lifestyle and intentions over the course of their lifetime. The enquiry will extend to wide areas of the taxpayer‟s life and that of his family and will ask questions and ask for information in support of the claim. One question that may be asked is “did you ever form the intention of remaining in the alleged domicile of choice permanently (or at least indefinitely)?” Unless that question can be answered in the affirmative a domicile of choice will not have been established. It may also be possible for certain individuals to obtain a domicile ruling by transferring foreign property to a settlement providing the inheritance tax at stake is at least ₤10,000.
Domicile of Children
Whilst a child is under 16 years of age his domicile will follow that of his parents and if the parent’s domicile changes so too will that of the child who has a domicile of dependency.
To be more precise the domicile of the child will normally follow that of his father. If the father is dead or if the parents are living apart and the child is living with his mother then the child’s domicile will follow hers.
On reaching age 16 the individual remains domiciled in the country in which he was domiciled immediately before unless and until he abandons that domicile either by the acquisition of a domicile of choice or revival of his domicile of origin.
It is important to note that it is the child’s domicile of origin which will revert on any subsequent loss of a domicile of choice and not the domicile of dependency at age 15 years and 364 days.
Prior to 1 January 1974 the age at which an individual could acquire an independent domicile was 21.
Until 1 January 1974 a married woman was incapable of having an independent domicile of choice and her domicile depended on that of her husband.
The domicile of women who have married after that date is not dependent on that of their husbands’. Thus, if either the facts or intentions are different for two spouses their domiciles may well differ.
With the exception of US nationals who are exempted under the UK/US Double Tax Treaty, women who married prior to 1 January 1974 retained their existing domicile on 1 January 1974 as a domicile of choice if it was not their domicile of origin.
To lose a domicile of choice acquired in this way it is necessary to take the same steps as abandoning any other domicile of choice i.e. the country must be abandoned with the intention of never returning to it.
For inheritance tax purposes only, the concept of domicile is extended to include people who would not otherwise be domiciled within the UK. Such individuals will have a deemed domicile within the UK. This deemed domicile depends solely on facts and establishment of intent is irrelevant.
The relevant rules are now contained within the Inheritance Tax Act 1984 s.267 and in brief an individual will be deemed domiciled within the UK if either of the following two circumstances applies:
- The individual was domiciled in the UK within the three years immediately preceding the relevant time (i.e. gift or death); or
- He was resident in the UK in not less than 17 of the 20 years of assessment ending within the year of assessment in which the relevant time falls but for these purposes the availability of accommodation is disregarded when considering residence.
It is important to realise that the second test is generally more onerous than the first when considering an individual migrating from the UK. Also, the second test works on a UK fiscal year basis. It is also prudent in tax planning to allow a fiscal year’s grace in case of an unforeseen premature resumption of residence in the UK. This is best considered further in relevant cases.
The Deemed Domicile Rules Post April 2017
Changes to the rules for non-doms in relation to income tax and capital gains tax are due to come into effect on 6 April 2017. The details of the new regime are yet to be finalised but, at the time of writing (October 2016), they are expected to be as follows.
Individuals that have been resident in the UK for more than 15 of the past 20 tax years will be deemed UK domiciled for all UK taxes. The changes will therefore supersede the existing IHT rule.
In addition, those who were born in the UK, and had a UK domicile of origin, will revert to having a UK domicile for tax purposes whenever they are resident in the UK, even if under general law they have acquired a domicile in another country. There is intended to be a one year grace period for IHT only, so a person will not be treated as domiciled for IHT unless they were resident for at least one of two tax years prior to the year in question.
The new rules will be effective from 6 April 2017 irrespective of when someone arrived in the UK. There will be no special grandfathering rules for those already in the UK. For those who leave the UK before 6 April 2017 but would nevertheless be deemed domiciled under the 15 year rule on 6 April 2017, the present rules will apply, i.e. no deemed domicile for income and capital gains taxes and IHT treatment based on the current rule.
There will also be a “run-off period” of four years during which deemed domicile status will endure for IHT purposes. The intention is that UK domiciliaries who leave after 5 April 2017 who have been in the UK for over 15 years will also be subject to the four-year rule even if they intend to emigrate permanently.
After having spent more than six full tax years abroad, the clock is re-set. So, if a non-dom returns to the UK temporarily, they will be able to spend another 15 years as a UK resident for tax purposes before becoming deemed domiciled again. This will not, however, apply to returning UK domiciliaries, who will always be treated as UK domiciled as soon as they resume UK tax residence, save for the one year grace period for IHT as noted above.
If you would like further advice or information in relation to the issues outlined in this article, please contact one of our tax specialists.