Home Is Where You Make It: Domicile, An Overview
What is Domicile?
Domicile is a concept of common law in the UK and each individual has only one domicile. Many people are unsure as to what this nebulous concept means; it is not the same as nationality, residence, or citizenship. Your domicile status is best defined as the country where your ‘homeland’ is, whereby the country in which you have a permanent home and where you plan to live indefinitely are two of the predominant contributing factors in determining this.
Why is Domicile Important?
Many people are internationally mobile; therefore, domicile helps to establish which UK tax rules are applicable to these individuals. The legal system where you are considered to be domiciled works alongside your residence status to determine your liability to UK tax.
The Statutory Residence Test states that UK residents who are also UK domiciled will pay UK income tax on their worldwide income.
On the other hand, UK residents who are non-UK domiciled may not be required to pay UK tax on their foreign income/gains provided that a claim for the ‘remittance basis’ is made and the funds are not enjoyed in the UK.
Furthermore, if an individual is domiciled in the UK immediately prior to their death, then UK Inheritance Tax “IHT” will be chargeable on their worldwide estate. In contrast, if they are not domiciled in the UK, they will only be subject to UK IHT on their UK assets.
Types of Domicile
- Domicile of Origin
- Domicile of Dependency
- Domicile of Choice
- Deemed Domicile
Domicile of Origin
On birth you acquire a domicile of origin, which is normally the domicile status of your father. Alternatively, if your parents were not married when you were born then your domicile of origin will be that of your mother’s.
Therefore, it’s important to note that your domicile of origin will not necessarily be the country where you were born, as your respective parent may have been domiciled in a different country at the time you were born.
Domicile of Dependence
Up until the age of 16, your domicile status will be that of the person who you are legally dependent on, i.e. your father, your mother, or another legal guardian. If the domicile of the person you are dependent on changes, then your domicile will change too.
Domicile of Choice
As discussed above, up until the age of 16 your domicile status follows that of the person on whom you are legally dependent. However, after the age of 16 you have the legal capacity to be able to obtain a new domicile of choice which is not restricted by your domicile of origin or the domicile status of your parents.
Displacing a domicile of origin is difficult, and acquiring a domicile of choice requires satisfying both of the following conditions:
- You must physically have taken up residence in the new jurisdiction.
- You must have the intention of living permanently or indefinitely in the new jurisdiction.
The second part of this test is difficult for HMRC to prove, therefore some of the factors HMRC will consider as part of a balanced approach are:
- Your business interests.
- Your social and family interests.
- Your ownership of property.
- The form of any will you have made.
- Where you plan to be buried.
From 6 April 2017, deemed domicile rules were changed for UK income tax, capital gains tax and inheritance tax. These rules state that an individual who is not domiciled in the UK under common law will be treated as domiciled in the UK for all tax purposes if one of the two following conditions are met:
- Formerly Domiciled Residents
- Non-UK domiciled.
- Was born in the UK.
- Had a UK domicile of origin.
- Is UK resident for the relevant tax year.
- Long-Term Residents
- Non-UK domiciled
- UK resident for at least 15 of the previous 20 years.
Please note that domicile is an abstract concept that will likely need professional advice if you are looking to rely on it for tax matters. Therefore, if you have any queries around any of the topics discussed in this article around your domicile status, please do not hesitate to get in contact with a member of the team for expert tax advice.