For tax purposes, it is important to know where you are domiciled. Domicile is not the same as nationality or residence, and can sometimes be very complex. Following changes in the 2013 Budget, it is important to understand your domicile position, and that of your spouse. This has various effects on your UK tax position, during life, but perhaps most significantly for Inheritance Tax on death.
The concept of domicile is a matter of general law, not tax law, and there are a number of things that will affect an individual’s domicile.
There are three types of domicile, these being domicile of origin, domicile of choice and domicile of dependence.
Domicile of origin
An individual acquires a domicile of origin at the time of their birth. If the individual’s parents were married at the time of birth then the individual would automatically acquire their domicile of origin from their father. If however the individual’s parents were not married at the time of birth then the individual would acquire their domicile of origin from their mother.
A domicile of origin need not always be the country in which an individual was born – for example an individual might be born in a country which was not the country in which their father was domiciled at the time of their birth.
The fact that an individual was born in the UK does not automatically mean that they are UK domiciled. An individual might have been born in the UK to a non-UK domiciled father and then moved to another country.
A domicile of origin can be displaced as a result of adoption but otherwise it is difficult to displace. If an individual does leave their country of domicile they will continue to be domiciled in that country until such a time they acquire a domicile of choice.
Domicile of choice
It is possible for an individual to acquire a new domicile at the age of sixteen. This can be done by the individual leaving the current country of domicile and settling in another country.
Alternatively, if an individual is living in a country that is not their country of domicile, they will acquire a domicile of choice if they intend to remain there on a permanent basis.
Although no formal requirements are needed to acquire a domicile of choice, the individual must be able to provide strong evidence that the intention is for them to live permanently in the other country for an indefinite period. The onus of proof is on the individual.
If the first domicile of choice is abandoned, the domicile reverts to the domicile of origin until a new domicile of choice is established.
Domicile of dependence
Until a child has the legal capacity to change their domicile (age sixteen) their domicile will follow that of the parent on who they are legally dependant. If the domicile of the parent changes, the child will automatically acquire the same domicile as such said parent.
Before the 1 January 1974 a married woman acquired her husband’s domicile as a domicile of dependency. A woman married before this date retains that domicile of dependence until she changes it by acquiring a new domicile. After the 1 January 1974 a married woman has her own domicile.
In addition to the three main types of domicile as explained above, a fourth type of domicile exists for the purposes of IHT only. This is known as “deemed domicile”.
An individual will automatically be deemed to be domiciled in the UK for IHT purposes only if: –
a) he was resident in the UK for at least seventeen out of the twenty tax years ending with the year in which a transfer of value was made; and
b) for a period of thirty six months after ceasing to be domiciled in the UK
For more information, please contact Kirsty Swinburn (kirsty.swinburn@bhp.co.uk) or Elaine Skelton (elaine.skelton@bhp.co.uk).
