Where are we on domicile?

 In Tax

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Domicile status Taxation

Domicile status is crucial in determining a client’s liability to UK taxation. Although UK tax legislation looks at location of assets and residence, domicile can be the determining factor, particularly for inheritance tax. However it may not be easy to decide if your client is domiciled in the UK.

For something that is so important, most clients are surprised to learn that there is no statutory definition of domicile. There are also indications that HM Revenue & Customs (‘HMRC’) may be more willing to challenge what clients say about their domicile.

Domicile jurisdictions

Like the US, clients have to be domiciled in one of the jurisdictions that make up the UK, that is: England & Wales, Scotland or Northern Ireland.

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Although for tax purposes it makes no real difference, there are in fact certain legal differences between the three UK jurisdictions particularly in relation to trusts law and wills. For example, Scotland has a form of civil law ‘forced succession’, which contrasts with the freedom of disposition in England & Wales.

Why domicile is important

A UK resident client will usually pay UK tax on:

  •  World-wide income as it arises; and
  •  Capital gains, as they accrue, on the disposal of assets in any part of the world.

This is known as the ‘arising basis of taxation’.

However, a resident client who is not domiciled may be entitled to pay tax on the remittance basis, subject in some cases to paying the remittance basis charge.

Domicile is also vital for inheritance tax (‘IHT’) purposes. A non-domiciled client will only pay IHT on their UK situated assets. A client who is domiciled within the UK will be liable to IHT on their worldwide assets.

But what is actually meant by ‘domicile?

Unfortunately, there is no statutory definition of domicile in UK tax legislation. As with residence, clients have to declare whether or not they are domiciled when completing their Self-Assessment tax returns. HMRC then have the right to make enquiries into the tax return and can challenge the client’s domicile status.

The UK notion of domicile can cause confusion for clients from other countries, where the concept may not exist. French clients, in particular, understand the term domicile as residence. Translated literally, the UK term ‘resident but non-domiciled’ equates in French to ‘resident but not resident’!

It is important, therefore, to be aware of the factors to consider when determining a client’s domicile. It may be helpful to start with a brief resume of the principles of domicile.

Domicile basics

It is usually easiest to start with explaining the concept of domicile of origin. This is the domicile a child inherits at birth. If the child’s parents are married, the child takes his/her father’s domicile. For unmarried parents, it is the mother’s domicile that counts.

The parent’s domicile may not be the same as his/her nationality or the same as the country where the child was born. It is more a question of ‘where does the parent belong?’ So a German parent, who is living temporarily in the UK when the child is born, is likely still to be German domiciled. The child will therefore also be German domiciled, despite being born in the UK and even if being born here gives the child British nationality or the right to a British passport.

Until the child reaches the age of 16, his/her domicile will follow that of the parent. If the parent’s domicile changes, the child will receive a new domicile of dependency in place of the domicile of origin.

Finally, there is the domicile of choice. Once the child has reached the age of 16, s/he has legal capacity to change domicile. Case law states that the individual would need to leave the country where s/he is currently domiciled, to settle permanently in another country. There needs to be strong evidence that the individual intends to live in the other country permanently or indefinitely. HMRC usually looks for evidence that links with the country of the previous domicile have been severed.

For married women, it is worth checking the date of marriage. If it was after 1 January 1974, the wife’s domicile is entirely independent of her husband’s. However, for marriages prior to that date, the wife automatically acquired her husband’s domicile. Since the Domicile and Matrimonial Proceedings Act 1973 this was converted to a domicile of choice for the wife and can therefore be changed.

Based on these rules, it has been relatively easy for a person from outside the UK to live here for many years without acquiring a domicile of choice here. The client simply needed to show that s/he only came here for a fixed period of time, or a fixed purpose, or until a certain event e.g. retirement. The individual would have to maintain links with the country of domicile, but this is usually easy to achieve (e.g. by buying property there). As a result, HMRC does not have a good track record of challenging the domicile of a living person, although HMRC have had more success where the individual has died.

HMRC guidance

New guidance has been issued by HMRC dealing with domicile (and residence). Called HMRC6 it replaced, from 6 April 2009, the previously long-standing guidance set out in booklet IR20. A copy can be found at: http://www.hmrc.gov.uk/cnr/hmrc6.pdf

New guidance is most welcome but HMRC6 may indicate that HMRC are more likely to challenge an individual’s domicile. It states:

“We are unlikely to challenge any person who says they have a UK domicile. But if you say you have a non-UK domicile, then especially if you were born in the UK, we may want to enquire whether or not that is correct.”

HMRC6 deals, in particular, with the domicile of individuals born in the UK to a foreign domiciled parent. It contains this example:

“If you were born in the UK and your father was a non UK domiciled person working in the UK while you were a child you would have the same non UK domicile as your father.


You were brought up, educated and start work in the UK. When you are 21 your father retires from his job and decides to return to his country of domicile. You have bought a home and married and you have made the UK your permanent home which you do not intend to leave. You will not be joining your father abroad for anything other than an occasional visit. By deciding to stay in the UK permanently or indefinitely you have established a domicile of choice in the UK.”

The inference seems to be that if the individual were born in the UK to a foreign domiciled parent, HMRC expects the whole family to leave the UK. If the ‘child’ remains in the UK after reaching age 16, particularly if the foreign domiciled parent has gone back home, it appears HMRC will take this to indicate that the now adult child has adopted a domicile of choice here.

This matches HMRC’s statements in their Brief 17/09. This states that where an individual has obtained an initial view from HMRC on his/her domicile status, it is unlikely to be reviewed unless new information comes to light or there has been a change of circumstances. But this change of circumstances may now be presumed. Brief 17/09 states:

“However with the passage of time, circumstances and intentions change and so that initial view from HMRC can become less and less useful as an indicator of domicile status. For example, if an individual has advised HMRC on their arrival in England a decade or so ago that they planned to leave the UK after five years but had since married, had a family and decided to make England their permanent home then they will have adopted a domicile of choice within the UK.”

Whilst technically this is correct and is not new, perhaps it shows that HMRC will be more likely to enquire into a taxpayer’s domicile status when s/he has been resident for many years. If the taxpayer originally said s/he would only be here for a short period, but is still here years later, then HMRC might well argue that this demonstrates the adoption of a domicile of choice here. Clients from overseas may wish to review the statements they made when the first arrived in the UK.

Domicile rulings

HMRC’s Brief 17/09 also stated that they will no longer give domicile rulings for income tax or capital gains tax purposes. The DOM1 form, which HMRC used to ascertain an individual’s domicile intentions when arriving in the UK, is no longer in use. Any DOM1 forms received by HMRC since 25 March 2009 will be returned unexamined.

Instead, taxpayers are expected to include domicile information on their self-assessment tax returns. There is a question, however, as to how much information needs to be included. Is it sufficient just to claim non-domicile status, or does the taxpayer need to include full details in one of the Additional Information ‘white boxes’? If the taxpayer does not include information to help HMRC review the claim for non-domicile status, would this permit HMRC to re-open the tax return later if they wished to challenge the taxpayer’s domicile status?

It is still possible to obtain domicile rulings for inheritance tax, but HMRC have stated that the amount of IHT at stake must be at least £10,000.

Domicile traps

Even if you have ascertained that your client is non-domiciled, this is not necessarily the end of the story. For inheritance tax purposes only there are two concepts of ‘deemed’ domicile. These are contained in section 267 Inheritance Tax Act 1984 and there are two different ways in which a non-domiciled client can be treated as domiciled for IHT:

  • If the client has been UK resident for not less than 17 out of the previous 20 years of assessment, or
  • If the client has been domiciled in the UK, s/he will continue to be domiciled for IHT for 3 years after changing domicile.

The first rule will catch clients who come to the UK from overseas and believe they have kept their non-domicile status. Whilst they may be able to do so for income tax/CGT purposes, for IHT they will be UK domiciled after 17/20 tax years of residence. The second case will catch people leaving the UK permanently, who will not lose their domicile here for three years. In both cases, the client will be subject to IHT on their worldwide assets.

For income and capital gains tax, it is no longer the case that a non-domiciled client will be automatically entitled to claim the remittance basis of taxation. This will be the subject of our next article.


A client’s domicile status is crucial for determining liability to UK taxation, particularly IHT. This is a complicated area, made more so by the fact that there is no statutory definition of domicile and it appears that HMRC may be more willing to review what clients say about their domicile. It is important for clients to seek professional advice, particularly if they have been in the UK for many years but believe they still have a foreign domicile.

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