Domicile and Deemed Domicile – Spot the Difference

Last week, we looked at UK residency and today, we focus on an individual’s domicile. This is of interest to those preparing for the CII’s R03 Exam.

THIS ARTICLE IS RELEVANT TO EXAMINABLE TAX YEAR 2021/22

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 domicile and, although it is possible to acquire a new domicile, it is not easy.

At birth a domicile of origin is acquired; normally a child would take the father’s domicile; although, illegitimate children and those born after the death of their father would take their mother’s.  A wife’s domicile is completely independent of her husband’s; although, that has not always been the case. Prior to January 1974, a wife would have taken her husband’s domicile on marriage and would retain it until acquiring a new domicile of her own choice.

It is possible to acquire a domicile of choice by moving permanently to another country. There are no hard and fast rules regarding the actions that should be taken as evidence, but factors such as buying a house and making a locally valid Will would be considered. It is not easy to change domicile and 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 tax 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 their overseas income or gains that are remitted to the UK, “remitted” meaning brought into the UK for the benefit of the individual or persons linked to them. Those that claim the remittance basis will have to pay a Remittance Basis Charge once they have lived in the UK for at least 7 out of the previous 9 tax years.  More on this next time.

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