Determining and proving domicile

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25.09.23
Domicile

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Domicile is a very important issue for British expatriates.  You remain liable to UK inheritance tax on your worldwide assets for as long as you are domiciled or deemed domiciled in the UK.

While it can be possible to change your domicile, it depends on your circumstances and intentions and should be a carefully considered and planned process.

The basic rule is that a person is domiciled in the country in which they have their home permanently or indefinitely – the country you regard as your ‘homeland’, frequently described as the place where you intend to die.  You can live in Europe for many years and remain domiciled in the UK.

Domicile and inheritance tax

Whether or not your estate will be assessed for UK inheritance tax (IHT) depends on your domicile status (rather than on your tax residence).

Anyone who is deemed UK-domiciled is liable to 40% inheritance tax on their worldwide assets.  Each individual has a nil rate band of £325,000, plus a £175,000 ‘family home allowance’ if they meet certain conditions.  Any balance not used when the first spouse/civil partner dies can be passed to the survivor, potentially giving a couple a combined allowance of up to £1 million, depending on circumstances.

Note that while assets passed from one spouse/partner to another on death are generally not liable for IHT, this is only when both are UK domiciles.  If one of you is a non-UK domicile, there may be some inheritance tax to pay. If this applies to you or you are unsure, seek personalised advice.

If you die as a non-UK domicile, you will only be liable to UK inheritance tax on assets situated in the UK, and only the value above the two allowances.

Note that you may also be liable to inheritance tax in your country of residence, depending on the local tax regime.  Spain imposes succession and gift tax, which can be quite high, while Portugal charges a stamp duty on death in some cases.  However the UK would give credit for the tax paid overseas to avoid double taxation on the same asset. France has a special double tax treaty for inheritance tax, so French residents are only liable for French succession tax on non-UK assets. Cyprus and Malta do not have a local death tax.

Types of domicile

Domicile of origin – UK common law ascribes a domicile of origin to every individual at birth. It will be the father’s domicile, or the mother’s if she is single, and so not necessarily your country of birth.

Domicile of dependence – this applies to women married before 1974 (whose domicile will mirror their husband’s), minors, and other legal dependents.

Domicile of choice –  As the HM Revenue & Customs RDRM22010 explains, “any individual who has legal capacity can acquire a domicile of choice”.

Acquiring a domicile of choice

To acquire a domicile of choice you must be physically present and tax resident in your new country and intend to live there permanently or indefinitely.

Since HMRC could examine your intentions, to look for indications that you see Britain as your homeland and may return in the future, you need to sever as many ties as possible with the UK.  Electing for UK succession law to apply over local ‘forced heirship’ rules could also be a tipping point in combination with other ties to the UK.

Note that even if you take all the steps to adopt a domicile of choice outside the UK, it can take up to four years to shed a UK domicile for inheritance tax purposes. HMRC may treat you as UK-domiciled if you:

  • were UK resident for 15 of the last 20 tax years
    
    
  • return to Britain for more than a year (if the UK is your domicile of origin and place of birth)
    
    
  • move to a third country – until you can demonstrate you have established a new domicile of choice.
    
    

Proving domicile

Domicile determination is a highly specialist area; you need professional advice to ensure you get it right.  If you believe you have shaken off your UK domicile but HMRC determines otherwise, your heirs will face an unexpected tax bill.  In practice, HMRC will not consider domicile until it becomes relevant for some tax purpose, so you cannot normally ask them for confirmation in advance.

Here are examples of the types of information HMRC could request during a domicile enquiry:

  • Date, place, and nationality at birth, parents’ names and marital status, and details of siblings.
    
    
  • Details of your marriages/civil partnerships, divorce, and long-term cohabitation, and information on your children (names, dates of birth, nationalities, place of education, current locations, etc).
    
    
  • List of all residences from birth, details of transfers of property, and summary of residences that have been available for your use.
    
    
  • Information regarding any exercise of political rights in any territory; memberships of professional bodies; membership of clubs, societies, associations etc, and level of participation; details of religious, cultural, and social connections.
    
    
  • Ability to speak, read and write the relevant languages.
    
    
  • Details of any wills and the local law they are governed by; summary of any deeds and declarations, including those relating to dependents, and location of personal papers and items of financial or sentimental value.
    
    
  • Summary of your professional and personal advisers, their services, and location.

You will need to provide documentary evidence, eg, birth certificates, insurance policies, wills, and perhaps personal correspondence, photos, electronic records etc relating to your background, lifestyle, and intentions.

Remember you may not be dealing with this yourself.  It may be your heirs and/or executor who have to prove to HMRC that your estate should not be liable to UK inheritance tax.  You would therefore want to leave all your paperwork in order for them.

Domicile and estate planning

We cannot stress enough the importance of taking professional, specialist advice here; advice that is very specific to your circumstances and intentions.  Couples need to carefully consider if the surviving spouse may be drawn to returning to the UK after the first one dies.

Do-it-yourself domicile determination is not an option if you want to avoid leaving your heirs any unexpected tax bills and headaches.

Whether or not you have UK domicile status, there are tax planning arrangements available to reduce your liabilities to inheritance and other taxes. An expert in this area will help you establish your domicile status, how inheritance tax interacts with the local inheritance tax in your country of residence, and what steps you can take to minimise unnecessary taxes for your heirs.

Blevins Franks is highly experienced in this area and would be happy to review your situation and advise on the way forward.  With over 40 years of experience behind us, we provide a comprehensive domicile determination and estate planning service.

Contact us today for personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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