As people become more globally mobile and start putting down roots in different places, domicile starts, in many cases, to become less clear cut.
The place of your legal domicile is not necessarily the country in which you are resident or indeed the country in which you were born. It is often different from nationality. It is really more subjective than that and is determined by looking at your circumstances as a whole, to consider the country to which you are essentially most attached.
Why does it even matter?
Domicile can have a significant impact on your liability to UK income tax, capital gains tax and inheritance tax ("IHT"). When you die, a UK domicile means that your worldwide assets will be brought into the UK tax net for IHT, while if you are not UK domiciled, UK IHT, will only be charged on your assets actually situated in the UK. Given that the rate of UK IHT is 40% on death, this can have significant consequences.
It is also important if you and your spouse or civil partner have a different domicile from each other as there may be tax restrictions on what you can pass to each other in life or on death free of IHT.
Domicile is also relevant when preparing your Will as the place of your domicile will determine how the succession of your estate will be dealt with. If you don't have a Will in place when you die, domicile also plays a key role as the law in the place of your domicile will dictate who inherits your property there and your moveable assets (i.e. your non property assets) worldwide.
How is domiciled determined?
There are three main types of domicile in the UK:
Domicile of Origin
This is acquired at birth. If your parents were married when you were born, you acquire this from your father. Otherwise, you acquire your mother's domicile.
Domicile of Choice
As an adult, it's possible to acquire a domicile of choice, different to that of your domicile of origin. This is usually achieved by taking up residence in that country and demonstrating an intention to remain there on a permanent basis. It's necessary to show that you have sufficiently cut ties with the country of your domicile with no intention to return to the country of your original domicile to live in the future. This does not mean that you can't continue to visit that country or hold assets there, but it does require careful consideration and planning.
As the test is so subjective, in most cases, simply moving abroad is unlikely to be sufficient so as to become non UK domiciled. You must be able to demonstrate that you have severed ties with the UK and put down permanent roots in another country.
In the UK, there is no prescribed test or a simple checklist to assess whether you have acquired an overseas domicile of choice so it is essential to take proper advice, tailored to your specific circumstances. Examples of factors which may be taken into consideration are as follows:
- Where your family live
- Where your children are/were educated
- Where your assets are (and in particular, where you own property)
- Your future intentions (sometimes after death, friends and relatives will be asked about this)
- Where you have prepared your Will and any expression that might have been made as regards your domicile
- Where you wish your funeral to be held or your ashes buried/cremated.
The UK tax legislation will consider that an individual is UK domiciled if they have been resident in the UK for 17 out of the 20 tax years preceding their death or if they were domiciled in any of the 3 years before their death.
If you have lived in different countries, are married to someone from another country and/or have property or other assets in different places, it is essential to factor in domicile to your tax and succession planning.