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International tax planning:  Non-Domicile Status UK

Non-Domicile Status UK:

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4. Domicile

4.1. How does domicile affect your UK Income Tax and Capital Gains Tax liability?

For Income Tax and Capital Gains Tax purposes, whether or not you are domiciled in the UK is generally relevant only if you have foreign income and/or gains during a tax year. If you do not have foreign income and/or gains then your domicile status has no bearing on your UK Income Tax or Capital Gains Tax position and you do not need to consider it. The information in this guidance does not cover Inheritance Tax.

The guidance we provide here will help you, when your affairs are straightforward, to reach a decision on your domicile status. If your affairs are more complex, we direct you to where you can obtain more guidance. We also recommend that you speak to us so that we can give you more guidance or that you get advice from a professional tax adviser.

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The fact that you were born in the UK, have lived here for most of your life or are now living here permanently gives a good indication that you might be domiciled in the UK, but this is a complicated legal issue and you might want to get professional advice if you are unsure about your domicile status.

If you have foreign income and/or gains then your domicile might have a bearing on what UK tax you pay on those foreign income and/or gains. If you are resident but are not domiciled in the UK, although you will still have to pay UK tax on any income and/or gains which arise or accrue here, you might wish to claim the remittance basis of taxation for your foreign income and/or gains (see part 5).

We are unlikely to challenge any person who says they have a UK domicile. But if you say that you have a non-UK domicile, we might need to check whether or not that is correct, particularly if you were born in the UK. By its very nature a check aimed at establishing your domicile will be an in-depth examination of your background, lifestyle and intentions over the course of your lifetime. Any check of this sort will extend to areas of your life, and that of your family, that you might not normally think are relevant to your UK tax affairs. We will need to ask these questions and sometimes ask you to provide us with evidence as part of a check into your domicile status.

4.2. What does domicile mean?

Domicile is a matter of general law; not of tax law. There are many things which affect your domicile. Some of the main points that you should consider if you are claiming not to be domiciled in the UK are shown below:

  • You cannot be without a domicile.
  • You can only have one domicile at a time.
  • You are normally domiciled in the country where you have your permanent home.
  • Your existing domicile will continue until you acquire a new one.
  • Domicile is distinct from nationality and residence, although both can have an impact on your domicile.
  • The fact that you register and vote as an overseas elector is not normally taken into account when deciding whether or not you are domiciled in the UK.

Any references we make to being ‘domiciled in the UK’ are references to being domiciled in any part of the UK.

4.3. What types of domicile are there?

There are three types of domicile. These are:

  • domicile of origin
  • domicile of choice
  • domicile of dependence.

4.3.1. Domicile of origin

You normally acquire a domicile of origin from your father when you are born (see also ‘domicile of dependence’). It need not be the country in which you were born – for example you might have been born in a country which was not the country in which your father was domiciled at the time of your birth. A domicile of origin may change as a result of adoption, but otherwise is not easy to displace, although it can occur. If you leave the country of your domicile of origin, you will continue to be domiciled there until you acquire a domicile of choice elsewhere (see 4.3.2).

The fact that you were born in the UK does not automatically mean that you are domiciled here. You might have been born in the UK to a non-UK domiciled father and then moved to another non-UK country. Regardless of the fact that you were born in the UK, your domicile of origin would be the same as your father – non-UK. If you return to the UK and are not planning to remain here permanently or indefinitely, then you will continue to be domiciled outside the UK.

If your parents were not married at the time of your birth, you would acquire your domicile of origin from your mother.

4.3.2. Domicile of choice

You have a legal capacity to acquire a new domicile at the age of 16 (earlier in Scotland). Broadly, to acquire a domicile of choice, you must leave your current country of domicile and settle in another country. Or, if you are already living in a country other than that of your domicile, you will acquire a domicile of choice there if you intend to remain permanently or indefinitely. In either case you need to provide strong evidence that you intend to live there permanently or indefinitely. The following factors will be relevant, though this list is not exhaustive.

  • Your intentions.
  • Your permanent residence.
  • Your business interests.
  • Your social and family interests.
  • Your ownership of property.
  • The form of any will that you have made.

4.3.3. Domicile of dependence

Until you have the legal capacity to change it, your domicile will follow that of the person on whom you are legally dependent. If the domicile of that person changes, you will automatically acquire the same domicile, and your domicile of origin will become dormant. Before 1974, a married woman automatically acquired her husband’s domicile. As a married woman, who married before 1974, you would retain your husband’s domicile until you legally acquire a new domicile. But, if you are a woman who married on or after 1 January 1974, your domicile is not necessarily the same as your husband’s. Your domicile will be decided in the same way as any other individual who is able to have an independent domicile.

An exception to the general position up to 31 December 1973 is given by the Double Taxation Agreement between the UK and the USA, which provides that a marriage before 1974 between a woman who is a US national and a man domiciled within the UK is deemed to have taken place on 1 January 1974.

4.4. Domicile flowcharts

The following flowcharts have been included to help you understand domicile.

Notes to domicile flowcharts

1. Domicile is a general law concept. It is not defined in tax law. It can be a complex subject, so the charts can give you no more than a likely indication of your domicile. In the UK, only a court may make a formal ruling on your domicile.

2. Your domicile status depends on the facts of your individual case. It is therefore not possible to set out in this guide something that will provide a definitive answer in all circumstances. But the following flowchart gives as strong an indication as possible, based on various generic factors. The chart will give the right answer for the majority of people, but it may not for you if your affairs are more complicated.

3. Your domicile may be dependent on someone else’s domicile (usually your father). But defining domicile status based on domicile as a starting point might not seem helpful. So, the chart provides a sequence of questions without reference to domicile itself.

4. If, using the chart, you arrive at the conclusion that you are ‘domiciled in the UK’ or ‘probably domiciled in the UK’ you may simply accept that conclusion. If you do, you should not tick the ‘non-domiciled’ box on the form SA109. You will then be taxed on the arising basis. Conversely, if the chart leads you to the conclusion that you are ‘domiciled abroad’ or ‘probably domiciled abroad’, you may feel that this confirms your own view. Or, you may consider consulting more detailed guidance or a tax adviser. Either way, you are still responsible for ensuring that any declarations you make are correct.

5. If your parents were not married at the time of your birth, references to ‘father’ should be read as ‘mother’.

6. If you were adopted, ‘father’ should be read as ‘adopted father’.

7. If your father’s domicile changed when you were a child, you should not use the chart, as the apparent conclusion could be misleading.

8. Your domicile relates to a particular territory. In most cases, this will be a country, but in federal countries it relates to the individual state. The UK is not a federal system, but it has three territories for domicile:England and Wales; Scotland; and Northern Ireland.

Examples relating to the domicile flowcharts

The flowcharts show a simplified process that should give you an indication of your domicile and the degree of likelihood that you need to find more guidance. They are designed to help the majority of users but cannot cover all the circumstances that might exist. You need to be careful when using the flowcharts and to take account of the relevant facts as illustrated by the examples below.

You cannot assume that, because you or your father was born outside the UK, you are not domiciled in the UK.

Stefan is typical of the majority of individuals who come to live and work in the UK without intending to remain here indefinitely. He will be here for a few years and will then return to his homeland. Workers in other business sectors will be internationally mobile and will not come to the UK from their homelands or return to them upon leaving the UK. But, the flowcharts will, in the majority of cases, give such individuals the guidance they need. Colin, Louise and Alun have more complicated personal histories and circumstances and they are likely to need to look at detailed guidance or consult a professional adviser.