Domicile – is it a choice?

Domicile – is it a choice?

The debate over domicile status has been hitting the headlines recently with the press appearing to focus on a perceived underpayment of UK tax. But is this really what has happened?

There are different types of domicile recognised in the UK, however it is not exclusively linked to your country of residence. Emma Skinner, Associate Director, explains how it is important for both UK and non-UK domicile individuals to understand the legislation and how it impacts their position from a UK tax perspective.

Types of domicile

Under UK legislation the following types of domicile exist:

1. Domicile of origin
Acquired at birth and is the same as the child’s father’s domicile (or mother’s where the parents were not married).

2. Domicile of choice
An individual may establish a domicile in a different country to their domicile of origin.

3. Deemed UK domicile
If an individual is not UK domiciled but has been resident in the UK for 15 of the last 20 tax years, they will be deemed UK domicile.

4. Formerly domiciled resident
This applies to individuals with a UK domicile of origin who leave the UK and obtain a domicile of choice. On their return to the UK, they will be deemed to be temporarily reviving their UK domicile of origin for UK tax purposes.

5. Domicile of dependency
A minor, under 16 years of age, changes domicile along with the father’s (or mother’s – see domicile of origin in point 1) if the parent’s domicile of origin is replaced with a domicile of choice.

Tax implications

As a UK domiciled and UK tax resident individual you are taxed on your worldwide income and gains under the ‘arising’ basis, irrespective of whether those income and gains are brought into the UK.

As a UK domiciled individual, your worldwide assets are also subject to UK inheritance tax.

A non-UK domiciled UK tax resident individual can opt to be taxed on the ‘remittance’ basis whereby overseas income and gains are only subject to UK tax when they are remitted to the UK.

There are annual charges imposed by HMRC for continued use of the remittance basis, depending on the number of years an individual has been UK tax resident.

It may therefore be beneficial to elect to be taxed on the remittance basis, where a non-UK domiciled individual receives large overseas income or gains.

Domicile of choice

For non-UK domiciled individuals, it can be beneficial to remain as such, however for those who wish to choose their domicile, what’s required?

An individual must be resident in the country in which they seek domicile, and they must demonstrate that their intention is to remain indefinitely, including severing ties to the origin country.

On the face of it this may seem straightforward, however when you consider these ties include lifestyle, family, and social connections, bank accounts, where the individual intends to be buried (where applicable) and other factors - this can be difficult to achieve and evidence.

Summary

So, is it a choice? The answer is, sometimes.

HMRC has increased scrutiny over non-UK domiciled UK resident tax returns. It is therefore imperative that individuals maintain evidence to support their non-UK domiciled status.

In relation to the scrutiny of a high-profile individual in recent news cycles, it does therefore appear that, in this particular case, it is not a legitimate tax compliance issue but more a matter of perceived moral duty… and that’s an entirely different question!

How can Haines Watts help?

We advise clients with a broad range of tax related matters across a number of sectors throughout Swindon and the South West.

If you would like to have a conversation to understand the complexities of domicile status or for any other tax compliance advice, please get in touch with your usual Haines Watts contact.