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    Updated On 20-11-2017
 
Concept of domicile
Many people have come across the concept of domicile when applied in the context of UK tax. The concept is not unusual, indeed, with the recent EU enlargement and the increasingly diverse nature of the UK population, there is a growing number of individuals who could theoretically claim to be non-domiciled for UK tax purposes.

Domicile is not purely a tax concept, as the tax aspects merely follow general English legal principles. The concept is equally relevant for some aspects of the law pertaining to marriage and legitimacy. Every person has a place of domicile and it is only possible to have one single domicile at any particular time.

Origin
There are various categories, but the first and most common is the concept of domicile of origin. This is hereditary as, in the case of a legitimate child, it is based upon the domicile status of the father at the child’s date of birth. In other cases, it is based upon the domicile status of the mother.

Domicile of origin is often described as being adhesive because once attained, that status will prevail forever unless and until an alternative domicile is acquired. There are only two alternative categories, those being domicile of dependency and domicile of choice.

Dependency
Domicile of dependency is the more straightforward of the two as this primarily relates to children under the age of 16. As domicile of origin is based upon the domicile status of the father at birth, should the domicile status of the father alter while the child remains a dependant (in this case until the age of 16), the child’s domicile status will follow that of the father. Once the child reaches the age of 16, the domicile of dependency will be replaced by a domicile of choice, albeit in the same jurisdiction.

There is another category of domicile of dependency which, while dated, still has some relevance today. This is only applicable to women married on or before 1 January 1974, as in these circumstances the woman acquired a domicile of dependency based upon the domicile status of her husband.

Choice
In the majority of circumstances domicile of origin can only be altered via the attainment of a domicile of choice in an alternative jurisdiction. To attain such a domicile of choice, it is necessary to illustrate both actual physical residence in the new jurisdiction plus the intention to remain residing there indefinitely.

Once a domicile of choice is attained, that status will remain until it is abandoned by virtue of the cessation of residence and the lack of an intention to remain in that jurisdiction. In these circumstances, either a domicile of choice will be attained elsewhere via actual residence and an intention to remain indefinitely or, should there be no new domicile of choice, the domicile of origin will be revived.

As domicile of choice is rather subjective, it is often the subject of considerable discussion with theUK tax authorities, with the onus being upon the party seeking to argue that a change has taken place. Therefore, in the case of an individual with foreign domicile of origin arriving in the UK, it is for the tax authorities to prove that the individual has attained a domicile of choice in the UK by virtue of the evidence of his/her actions and intentions.

Deemed Domicile
While the origin, dependency and choice of domicile categories are based upon general legal principles, there is a fourth category which is applicable solely for the purposes of UK inheritance tax.

Should a non-domiciled person (under any of the three general legal principles described above) be resident for tax purposes in the UK for any part of seventeen years in a twenty year period, that person will be deemed to be UK domiciled for inheritance tax purposes only and his/her entire worldwide estate will be liable to UK inheritance tax. To reinforce the point, as this is solely a ‘deeming’ provision, this does not alter the general domicile status.

Any UK resident non-domiciled persons should continually review their status. When they have 13/14 years of continuous UK tax residence, they should consider a review of their inheritance tax status with a view to taking appropriate advice prior to becoming deemed domiciled.

Advantages available to a UK resident non-domiciliary
Any person resident, but non-domiciled in the UK, has a number of tax advantages. For both income tax and capital gains tax, the remittance basis of assessment is available ensuring that non-UK sourced income and capital gains can only be liable to UK tax in the event that the funds representing that income or those gains are remitted to the UK. Significant UK tax advantages can be obtained by a UK resident non-domiciliary should they hold funds in a tax-neutral jurisdiction such as Jersey. It is necessary for the individual to organise his or her affairs in a suitable manner to take advantage of the favourable tax treatment. For example, it is often necessary to hold a number of differing bank accounts; an account holding capital derived from, say, an inheritance, capital derived from asset sales at a gain and an income account to receive overseas income (including the interest from the two capital accounts). This ensures that it is clear from which source funds are remitted to the UK.

There are also various areas of complexity regarding the remittance basis. There are subtle but important differences between the income tax and capital gains tax remittance basis. In order to avoid manipulation of the rules, there are also some technical provisions concerning the definition of a remittance. Care should be taken in these instances.

There are extended advantages available should a UK resident non-domiciliary hold assets and funds via a trust, again located in a tax-neutral jurisdiction. These advantages primarily apply to capital gains tax and inheritance tax as long-term protection can be obtained by the use of an appropriate trust structure.


Source: Wendy Walton BDO Stoy Hayward LLP
 
 
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