In an increasingly globalised world, where trade and the flow of goods and services span numerous jurisdictions, there is inevitably a significant increase in the number of internationally mobile individuals. Advanced technology, increased opportunities for work and travel abroad and the expansion of global markets all come into play.
Why is domicile important?
This throws the spotlight on the legal status of people moving between different countries and raises the question of which legal system should apply to them in relation to their personal affairs.
Under English law (particularly in the private client arena) a key concept is ‘domicile’. It is relevant not just to tax, but also matrimonial issues and succession.
What is domicile?
There is no statutory definition of ‘domicile’ but it is generally thought to refer to a person’s permanent home, or ‘roots’.
It is a concept which has developed from many years of case law and, as with many common law concepts, there can be plenty of ‘grey areas’ when assessing someone's domicile status.
There are three different types of domicile:
- Domicile of Origin, which is acquired at birth
- Domicile of Dependency, which can be acquired under the age of 16 and can displace a domicile of origin and
- Domicile of Choice, which again can displace a domicile of origin if an individual moves to a new country and intends to settle there permanently and indefinitely.
Even if you are not domiciled in the UK under the common law rules, you can be treated as domiciled here (‘deemed domiciled’) for tax purposes under the UK tax code.
The crunch point for individuals who have links to the UK and other jurisdictions, is likely to concern their domicile of choice, whether that is the acquisition of a domicile of choice outside the UK (thereby displacing an English domicile of origin) or the possible reinstatement of an English domicile of origin on the return to the UK after a period abroad.
Domicile should also be a watch-point for non-domiciliaries (with a foreign domicile of origin) living in the UK on a temporary basis.
Did you know?
- Many of the cases which still govern the concept of domicile today span back to the 19th century before the invention of the telephone, the light bulb and the radio.
- Domicile is different to residence and nationality, although both of these factors can be relevant to a person's domicile status.
- A domicile of origin can never be lost, although it can be displaced by other types of domicile.
- An individual can be domiciled in a country in which he or she has never actually lived.
- A person can only ever be domiciled in one jurisdiction at any one time.
- Domicile under English law has a different meaning to domicile in other countries. This can lead to some conflict of law issues although it can also offer some planning opportunities, especially where there are double tax treaties in place.
- The English law test for acquiring a domicile of choice is subjective, because it depends on a person’s intention (i.e. whether they intend to settle in a jurisdiction on a permanent and indefinite basis) although this necessarily has to be evidenced on a factual basis. Relevant factors include a person's residence status, the location of their assets, their business and employment links, social and family connections and nationality. The list goes on.
- HM Revenue & Customs (HMRC) has expressly confirmed that it is continuing to enquire into domicile notwithstanding the expansion of the deemed domicile rules in 2017. HMRC enquiries can be lengthy and onerous in terms of the information requested, although the requests are not always valid in the circumstances and need to be carefully assessed.
Do I need advice?
We would recommend you seek advice on your domicile position if you have links to the UK and one or more other jurisdictions. Particular areas of importance to international private clients include:
- Tax status – e.g. can a person claim the remittance basis of taxation in relation to foreign income and capital gains, what are the implications for trusts set up by them, will their estates be subject to inheritance tax etc; and
- Estate planning and succession – determining which law will govern how assets pass on death and how this should be documented.
This article is from the summer 2019 issue of Private Lives, our newsletter covering the key legal and tax issues that individuals face.