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U.K. Domiciled Versus Non-Domiciled: Why Does it Matter Post Brexit?

Dec. 1, 2021, 8:00 AM

Following the U.K.’s exit from the EU, an EU citizen wishing to come and live in the U.K. must apply for permission to do so through an appropriate visa application. This is a legal immigration matter. Anyone already living in the U.K. may have applied for pre-settled or settled status, depending on their circumstances. If granted, settled status gives a person the right to live, work and remain in the U.K. indefinitely

Domicile

Domicile is a legal concept. Under English law everyone acquires a domicile of origin when they are born. This is usually the father’s domicile at the time the child is born, but if parents are unmarried, the mother’s domicile is acquired.

A domicile of origin is very adhesive and will remain in place forever unless a domicile of choice is acquired in another country. A domicile of choice is broadly acquired if a person fixes their main or chief residence in the new country and intends to reside there indefinitely or permanently.

Why Does it Matter?

Understanding where a person is domiciled really matters. The U.K. tax position for a non-U.K. domiciled individual can look very different from that of a U.K. domiciled person: A person who is non-U.K. domiciled is always taxable on U.K. source income and gains but can choose to only be taxed on non-U.K. sources to the extent that such person remits them to the U.K.

After 15 years (out of 20) of U.K. residence, the person becomes deemed domiciled and is then treated as if they are domiciled in the U.K. for all tax purposes regardless of whether they actually are or not under general law. Their worldwide assets are also then within the scope of U.K. inheritance tax in the event of their demise. Genuine preservation of non-U.K. domicile can therefore be very valuable.

Domicile of Choice

A person can only have one domicile at any one time. It is possible to acquire a domicile under general law at any time if it can be shown that a person intends to remain in the U.K. permanently, in the sense of never intending to leave. The intention to remain must be firm and settled.

In coming to this judgment, length of time already spent in the U.K. is only one of many factors and even a short period of time in the country can result in acquiring a domicile of choice if there are sufficient other facts that suggest the U.K. is the dominant and prevailing home and will remain so in all senses.

A person who was already in the U.K. and detained longer due to pandemic-related reasons will not acquire a domicile of choice in the U.K. by reason of that alone, unless of course the individual already did not intend to leave or has formed an intention to remain indefinitely anyway.

A person coming to the U.K. for the first time with a domicile of origin outside of the U.K. is usually non-U.K. domiciled at the outset unless upon arrival they are coming with a clear intention of never wishing to leave, or wishing to set roots down permanently in the sense of ending their days in the U.K.

Intention to Leave

It is very important that a non-U.K. domiciled individual who is living in the U.K. can show that they intend to leave one day.

The intention to leave the U.K. must be real and must be clear. It cannot simply be a vague notion that one day in the future an individual will leave. Over the years, a number of cases have demonstrated this need for a clear and unequivocal intention (Cyganik v Agulian, paragraph 51) and that there must be a realistic contingency upon which the individual is going to leave.

The intentions of a person will be ascertained by looking at the whole of an individual’s life and all the available evidence. In these circumstances we must examine very carefully where the person’s ties are strongest—personal, family, and economic interests. The U.K. tax authority, HM Revenue & Customs, will consider everything available to them.

All non-domiciled individuals are therefore well advised to review and document their intentions from time to time by writing a domicile statement. In this way there is contemporaneous evidence on the matter.

Strength of Domicile of Origin

In a world in which we can normally travel around the globe with ease, it is quite common to find that a person has lived in a number of countries, may even have homes in a number of countries, and their family and financial assets may also be spread around the globe for various reasons. If the person has retained a home in their country of origin that will strengthen their ties there, but it does not prevent that person acquiring a domicile of choice in the U.K. if all other facts or the overall balance of their circumstances support that.

For example, let’s suppose a person has a non-U.K. domicile of origin. They have spent part of their adult life in the U.K. before moving overseas to another country (the new country) which is also not their country of origin. After many years, the person returns to the U.K. They do not wish to return to their country of origin. Even if they have acquired a domicile of choice in the new country over the years, the fact they are leaving strongly suggests they are abandoning their domicile of choice there unless they are only leaving on a temporary basis.

As the individual has no wish to ever return to their domicile of origin there could well be an assumption of U.K. domicile on arrival if they are coming for an indefinite time without any clear intention of leaving.

Impact of Actions

It is stated above that where domicile is not absolutely clear, it is decided based on the balance of probabilities by looking at the overall facts of a person’s life. In assessing this, some actions will carry some significant weight one way or the other.

For example, obtaining U.K. citizenship is a significant indicator that an individual wishes to remain in the U.K. but it is not on its own necessarily going to make that person U.K. domiciled under general law.

If a person only has a home in the U.K. and is of advancing years such that they may not be able to travel as easily as formerly, there is going to be inevitable risk that they will remain resident in the U.K., their chief and only home will be in the U.K., and the circumstances in which they may leave may ultimately not be realistic. The risk of U.K. domicile would be high without other facts.

Most individuals have a will in the country of their domicile because a person’s estate passes in accordance with the laws of the country in which they are domiciled. The will usually states where a person wishes to be laid to rest after death. If a person asserts they are non-U.K. domiciled, their place of burial should be outside of the U.K.

Practical Steps

It is essential that non-U.K. domiciled individuals take specialist advice.

Anyone planning to come to the U.K. should take advice well in advance of arrival, not only to be sure of their domicile but also to ensure they are fully aware of the U.K. tax position as it will apply to them and they can plan their affairs accordingly. This is more limited after a person is already U.K. resident; they also need to ensure they complete any U.K. tax filing obligations.

Periodically, a written domicile statement helps an individual consider whether there is any possibility that their non-U.K. domicile could be challenged or indeed whether in fact they have acquired a domicile of choice in the U.K. already.

If, upon review, a person believes they may have acquired a U.K. domicile, they will need to make sure their U.K. filing position is correctly adapted to reflect the new status, and can plan with their tax adviser whether there are any reasonable steps they should now take to improve their overall tax position. A U.K. domicile will put their worldwide assets at risk of U.K. inheritance tax—early consideration of sensible, effective planning is key.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Liz Cuthbertson is a partner at Mercer & Hole.

The author may be contacted at: liz.cuthbertson@mercerhole.co.uk

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