UK domicile: the ties that bind

UK domicile: the ties that bind
19 July 2011

THE domicile status of an individual is an important concept in the UK tax and legal system.

It determines liability to tax and is key to determining a connection to the UK legal system and whether UK or foreign law applies in various situations. These include whether you can sue or be sued, for divorce and custody proceedings and, perhaps most notably, how your estate will be dealt with – and whether or not it will be liable for inheritance tax – when you die.

Three types of domicile

Put simply, your domicile is the country you regard as your permanent home. If you don’t live there at present, you must intend to return there one day. It follows from that definition that your domicile can change and there are three types of domicile that may apply to you during your lifetime.

Your domicile of origin is acquired at birth and will be the same as your father’s domicile or, if your parents are unmarried, your mother’s domicile. Your domicile of origin remains with you for life unless you acquire a new domicile of choice.

Your domicile of choice is acquired when you make a new country your permanent home with the intention of remaining there for the rest of your days.

Your domicile of dependency is only relevant to children under the age of 16 and only applies if there’s a change in the father’s domicile.

Requirements for non-doms

Having established what domicile means it may be helpful to consider who would not be considered UK domiciled for tax purposes.

First, there are foreign nationals who come to live in the UK. Assuming they have a foreign domicile of origin, and provided they don’t acquire a UK domicile of choice, they will usually remain non-domiciled in the UK. Their children will also be regarded as non-domiciled, even if they were born in the UK and are UK nationals, provided they don’t establish the UK as their domicile of choice.

Second, there are UK nationals who have a UK domicile of origin, but emigrate. If they leave the UK permanently they can progress towards establishing a new domicile of choice overseas. If they succeed they will become non-UK domiciled.

By leaving the UK permanently they will also lose their UK resident status and will be exempt from paying UK income tax and capital gains tax. A major benefit of retaining foreign domicile or relinquishing your UK domicile is an exemption from UK inheritance tax for your overseas assets.

Losing your UK domicile

However, how difficult is this to achieve? As we have seen, to lose your UK domicile there are two essential requirements that must be satisfied: firstly, establish residence in another country, and secondly, you need to have an intention to live there permanently or indefinitely. But intent alone is not sufficient.

The intent must be backed up by physical actions that demonstrate and support that intent objectively. Why? Simply because HMRC is paying very close attention to those who are trying to lose their UK domicile of origin and they do not concede the point lightly.

In order to lose a domicile of origin you need to make a specific overseas country your domicile of choice. This involves physically residing there and having sufficient intention to remain there for the rest of your days. For anyone with a UK domicile of origin, however, it’s very important, when looking at establishing a foreign domicile of choice, that you can fix your residence and intentions in a particular country.

This is a problem UK expatriates face in the UAE. Due to its immigration laws, the UAE is not a country you can fully emigrate to and achieve permanent residence or citizenship.

Most expatriates in the UAE are temporary residents at best. If you intend to end your days in a country other than the UAE, or are obliged to do so, you are likely to have failed to establish an overseas domicile of choice.

It is not sufficient to simply show a desire never to return to the UK: you need to actually show a desire, and ability, to live overseas in a specific country. If you are unable to demonstrate a sufficient intention to reside in a specific country, your domicile of origin will continue to apply and you will remain liable for inheritance tax – at a penal 40% – on your worldwide income.

Pic credit: renjith krishnan/

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