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Domicile Complexities: All you need to know!

By admin
02 Nov 2023
International Tax

Are you confused by the complexities of Domicile?

There’s been a lot of talk in the media about “non-domicile status” – largely due to the revelation that Mrs Sunak has made use of the so-called loophole to hide her offshore income (not technically a loophole) and Labour’s announcement of their intention to abolish it.  But what is non-dom status?

The word “dom” in this instance refers to a person’s domicile – a common law term with no statutory definition.  Broadly a person’s domicile is the country in which they have a settled intention to remain for the remainder of their life.  We’ve previously discussed the different ways in which a person can acquire a domicile (origin, dependence, choice) and how more recent changes to UK tax legislation have brought in the concept of deemed domicile (the difficulty here being that this can result in a person having two domiciles).

Until fairly recently, domicile was an issue predominantly in respect of inheritance tax which most often becomes important following a person’s death.  It can therefore be extremely difficult to obtain evidence of a person’s intentions if they’re no longer contactable (unless you possess certain gifts).

But even if you’re in possession of all the evidence, collected and retained throughout a person’s lifetime, determining a person’s domicile is not always easy, particularly as people are more internationally mobile these days and fewer people are marrying before deciding to start a family.

To re-cap, every person is born with a domicile of origin.  This is identical to your father’s domicile at the date of your birth if your parents are married at that time (if they’re not, then you obtain your domicile from your mother).  But what happens if your parents marry after your birth, or you have two fathers (who used a surrogate) or two mothers (one of whom supplied their egg, the other who birthed you)?  What about adoption?  Or the ever-changing international borders or re-classification of countries?

It is notoriously difficult to change your domicile: not only do you have to be living in a different country and intend to live out your days there, but you also need to severe all (or all significant) ties to the country of your previous domicile status.  This includes, for example, taking an interest in politics, memberships and subscriptions, number and length of visits, location of family, assets (including land and property, bank accounts etc) or business interests.  It’s therefore vitally important that your domicile of origin is accurately determined.

So, going back to the potential complexities above:

  • Parents marry after your birth – you will retain your domicile of origin (acquired from your mother) unless this is displaced by a domicile of dependency or a domicile of choice.
  • Two male parents – legal parenthood must be transferred under the surrogacy arrangement and the child’s domicile changes at that point.  This situation is yet to be tested in the courts and as the child has two legal father’s it’s not possible to determine from whom a domicile of origin would be acquired although if one father is also the biological parent, it is likely this would indicate the child’s domicile.
  • Two female parents – the child has one mother (the birthing person) and a second legal parent (this may be a sperm donor – the father, or an egg donor – the female parent).  As the mother is not married to the biological father at the time of the child’s birth, that child is considered illegitimate and acquires its domicile of origin from it’s mother (the birthing parent).
  • Adoption – legal parenthood changes at the point of adoption and follows the normal rules regarding legitimacy and opposite/same sex couples.
  • International issues – where a country no longer exists, or the border has changed such that the country you consider to be your domicile or origin is a couple of miles further north, your domicile is determined with reference to the physical location of your birth (or that of the person from whom you acquired your domicile of origin)

Once the domicile of origin has been established, it can only be displaced by a domicile of dependency (whilst a minor) or domicile of choice (as an adult).  Whilst the child is still a minor, their domicile changes to match that of the parent upon whom they are dependent and commonly changes following divorce or where the dependent parent acquires a domicile of choice.  Once an adult, the child may acquire their own domicile of choice.  Where a person later severs that domicile of choice, their domicile of origin reverts until such time as they acquire a new domicile of choice.

In the UK there are additional considerations, namely:

  • Becoming deemed UK-domicile for all tax purposes if you have been a long-term tax resident (15 of the previous 20 years)
  • Becoming deemed domiciled for all tax purposes if you are domiciled outside the UK, but you were born in the UK with a UK domicile of origin (i.e. acquired a domicile of choice elsewhere but returned to the UK)
  • Continuing the be considered UK domiciled for inheritance tax purposes only for three years following a tax year of departure.

But why is domicile status important?  One of the immediate considerations is that, as a non-UK domiciled individual, you can make use (subject to certain charges) of the remittance basis of taxation whereby overseas income and gains become taxable only when they are remitted to the UK.  The definition of ‘remittance’ is broad and doesn’t simply mean bringing cash into the country (either by bank transfer or in a suitcase).  Being non-UK domiciled also means that your overseas assets are not brought into charge for UK inheritance tax purposes although you can irrevocably elect to be deemed domiciled should you wish (potentially useful when considering gifts between spouses).

It’s clear from the above, that domicile status can be complex and given HMRC no longer provide confirmation of a person’s domicile status it would be useful to start collecting and collating evidence should there be a risk it will ever be called into question.  If you’d like further information about your domicile status, please do not hesitate to contact us.

Don’t forget to keep and eye on our socials for more information on domicile status Facebook Instagram and LinkedIn… 

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