Domicile and Deemed Domicile – Spot the Difference

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In this article we focus on an individuals domicile. In the previous article we looked at footballers as examples, but sportspeople are not the only section of the population who come from overseas to the UK to live and work this is now commonplace, and one much beloved of exam question setters!

Domicile is a legal concept rather than a construct of the tax authorities. Broadly a person’s domicile is the country which is their natural home, to which they would eventually expect to return – their homeland. You can only have one at a time, and once you have one, it’s very hard to lose.

At birth a domicile of origin is acquired – normally following the father’s domicile status.

It is possible to acquire a domicile of choice – by moving permanently to another country and it becoming the centre of your life – but this takes some doing. Any ties with the original country of domicile are likely to mean that the domicile of origin prevails.

Deemed domicile is a concept of Inheritance Tax (IHT) legislation – if a non-domiciled individual has been resident in the UK for at least 15 out of the last 20 years, then they are treated as UK domiciled for the purposes of computing IHT liability, which is important for those with significant overseas assets as the table below shows.

Domicile status also affects liability to Income Tax and Capital Gains Tax – the broad concept here is that non-UK domiciled individuals are only liable to UK tax on overseas income or gains remitted to the UK, “remitted” meaning paid across to the UK for the benefit of the individual or persons linked to them. In recent years this has made the UK an attractive place to live tax-wise for rich individuals (with good accountants!) coming from overseas – a veritable onshore tax haven.