Domicile
Where do you intend to spend eternity?
What is the location of your permanent home? Where do you intend to be buried? Where do you bank, vote, join clubs, visit doctors and dentists?
Such questions can be used to help determine your domicile. But the answer to any one question does not necessarily settle the issue.
NEWS UPDATE (February 2010): 91-Day Rule
In February 2010, the Court of Appeal stoked the financial worries of millions of Britons who live abroad and think they have severed their links to the UK sufficiently to gain significant tax advantages.
Robert Gaines-Cooper, a businessman, moved to the Seychelles in 1976 and spend fewer than 91 days per year in the UK. But the Court ruled that the 91-day standard did not by itself establish non-residency. If you still have ties to the UK, the tax authorities may decide that you are liable for tax.
BBC News reported that "The judges ruled there were "ample" grounds to rule that Mr Gaines-Cooper had in fact been "resident and ordinarily resident in the UK" throughout his apparent exile." Mr Gaines-Cooper's barrister said he will appeal.
"I, JOHN WINSTON ONO LENNON, a resident of the County of New York, State of New York, which I declare to be my domicile do hereby make, publish and declare this to be my Last Will and Testament, hereby revoking all other Wills, Codicils and Testamentary dispositions by me at any time heretofore made."
Opening sentence in the will of Liverpudlian John Lennon.
Many people live permanently in one country and pay income tax in that country - and are nevertheless domiciled in another country. Some people are deemed domiciled for tax purposes in one country even though they may be domiciled by origin or choice in a different country. Some people can be resident in two countries and domiciled in a third.
If you are part of a couple and your spouse or civil partner is a 'non-dom' - domiciled elsewhere - a special inheritance-tax threshold may apply. In addition, domicile can limit a dependant's ability to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
There are three types of 'excepted estates' (no IHT is due, and an IHT account is not required). One of these privileged groups is 'foreign domiciliaries'.
Domicile can have a huge impact on one's tax and inheritance position.
The three, er, four types of domicile
origin Usually - but not always - place of birth. You have two British parents and were born in Bristol or Bath; voilà, you have English domicile. Your sister has the same parents but was born during a family holiday in Bordeaux; voilà, she is...English. Compris?
dependence Refers to children and the adult(s) on whom the child depends.
choice Where you intend to reside permanently. Along with intention, it helps to have many links to your chosen country in the form of bank accounts, club memberships and cemetery plot. Balancing this should be correspondingly few links - the fewer, the better - to your previous domicile.
deemed Regardless of your specific country of domicile, the tax man may determine that you are domiciled in England and Wales for inheritance-tax purposes. If you emigrated from England or Wales within the last three years, or lived there for 17 out of 20 years, you may be deemed domicile.
IHTA84/S267
Even if a person is domiciled outside the UK under general law, two special rules apply to those who have emigrated from the UK or to those who have been resident here for many years. If either rule applies then, in most cases, we treat them as domiciled within the UK for the purposes of IHT, i.e. domicile includes deemed domicile. For all other purposes, e.g. succession, the general law applies.
The “three year” rule - IHTA84/S267 (1)(a): For the rule to apply they must have been domiciled in the UK both on or after 10 December 1974 and within three calendar years before the relevant event, e.g. gift, death.
*The “17 out of 20” rule - IHTA84/S267 (1)(b): For the rule to apply they must have been resident (for Income Tax purposes) in the UK on or after 10 December 1974 and in not less than 17 out of the 20 years of assessment, i.e. 6 April - 5 April, ending with the year of assessment in which the relevant event falls.
Source: HMRC
In our global mobile world, it is not necessarily easy or simple to add up the number of years resident in a country. Three months holiday in one country in one year, a temporary job assignment in another country in one or more other years, and the total can be 15, or 17 or 19 years out of 20.
Some well-travelled individuals have to list each year in question along with the exact number of days per year in the country - and even then, residency and domicile questions may persist.
From the HMRC's Mouth
Revenue and Customs have issued a new brochure on residence, domicile and remittance: HMRC6. The brochure does NOT address inheritance tax issues in particular; it addresses general tax basics.
HMRC6 is specifically addressed only to individuals and not to, for example, trustees, companies and other forms of 'legal person.' This brochure also does not address inheritance tax. However, HMRC does refer readers to the Customer Guide to Inheritance Tax.
HMRC6 replaces IR20, which provided guidance up to 6 April 2009. IR20 is still available for information regarding tax affairs before 5 April 2009.
