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Domicile
While an individual may hold “dual” nationality or residency, under UK law they can only ever be treated as domiciled in one country at any one time. There are however, some circumstances where, although not UK domiciled under the general law, an individual will be deemed domicile in the UK for inheritance tax purposes only.
Your domicile is decided at birth, although it may change during your lifetime.
Domicile of Origin
At birth every individual has a domicile of origin. This is the same as the domicile of the father, wherever the child is born. Illegitimate children and those born after the death of their father take their mother’s domicile. This is maintained unless and until a domicile of dependency, or a domicile of choice is established.
Domicile of Dependency
Until an individual reaches age 16, their domicile will follow that of the person on whom they are legally dependent. After this age, the individual has the legal capacity to adopt a domicile of choice.
Domicile of Choice
It is possible to change your domicile and adopt a domicile of choice. To do so, you must leave your current country of domicile and settle in another country. Strong evidence will be required that you intend to live there permanently or indefinitely. Living in another country for a long time, although an important factor, is not enough in itself to prove you have acquired a new domicile.
HM Revenue & Customs will not make a ruling on whether an individual has established a non-UK domicile. Under self-assessment it is a tax-payer’s duty to assess their status. However, HM Revenue & Customs will consider claims where this is material to a person’s tax liability.
There are no fixed rules as regards what will be required to establish a domicile of choice, but some of the actions which may help UK domiciled individuals to establish domicile in another country would include:
• Living there • Having your family there • Disposing of your property in the UK • Buying a house there • Effecting a will there • Working or establishing a business there • Making burial arrangements there. Once a non-UK domicile of choice has been established, there is a three-year period during which the individual will remain potentially liable to inheritance tax on transfers of both UK and worldwide assets (if they have been UK resident at any time since December 10th 1974). This period begins with the change of domicile, not from the date of leaving the UK.
Where the domicile of choice is abandoned (perhaps the individual moves to another non-UK country), the domicile of origin is reinstated, so that, although the individual may not return to the UK, there is a further three year period during which they are potentially liable to IHT on both UK and worldwide assets.
Deemed Domicile
Where an individual has been UK resident for 17 out of the last 20 tax years (including the current one), they will be deemed to be domiciled in the UK, for inheritance tax purposes only, under s267 IHTA 84. Residence, in this context, is determined as for income tax. The “deemed domicile” rule is not relevant for other taxes.
Married Couples
A married woman’s domicile is independent from her husband’s unless they married before January 1st 1974.
As was held in the case of CIR v Bullock (1976), it is possible for a married couple, only one of whom has a UK domicile, to settle in the UK, without the non-UK domiciled spouse automatically acquiring a UK domicile of choice.
OEICs and Authorised Unit Trusts
An exemption was announced on 16 October 2002, to the effect that, from this date, UK OEICs and authorised unit trusts held by non-UK domiciled individuals will be exempt from any charge to inheritance tax. The exemption also applies to Open Ended Investment Companies and authorised unit trusts held by trusts created by non-UK domiciled individuals.
If you wish to discuss the above further or require information on any of our services, then please contact us.
Any reference to legislation and tax is based on The Financial Planning Partnership's understanding of UK law and HM Revenue & Customs practice. These may be subject to change in the future. Tax rates and reliefs will also change and their value to you will depend on your individual circumstances. No guarantees are given regarding the effectiveness of any of the above strategies.