Domicile is a term used to describe an individual’s permanent home, or the country in which they have their most substantial connections. Domicile is an important consideration for tax purposes, as an individual’s domicile can affect their liability for various taxes, including income tax, inheritance tax, and capital gains tax.
In the UK, an individual’s domicile is determined by a set of complex rules that take into account a variety of factors, including their place of birth, their family history, and their intention to remain in the UK or to leave and settle elsewhere. In this article, we will explore the concept of UK domicile, how it is defined, and how it can be lost.
Defining UK Domicile
In the UK, an individual is generally considered to be domiciled if they have their permanent home in the UK or if the UK is the country to which they have the closest ties. Domicile is a legal concept, and it is distinct from other terms such as residency or citizenship.
There are three types of domicile recognized under UK law:
- Domicile of origin: An individual’s domicile of origin is usually determined by the domicile of their father at the time of their birth. For example, if an individual is born to a father who is domiciled in the UK, they will generally be considered to have a domicile of origin in the UK.
- Domicile of choice: An individual may acquire a domicile of choice by demonstrating a clear intention to settle permanently in a new country. This usually requires evidence of long-term residence, such as the purchase of a property, the establishment of business interests, and the severing of ties with the previous country of domicile.
- Domicile of dependency: In some cases, an individual’s domicile may be determined by the domicile of their spouse or civil partner. This is known as a domicile of dependency.
Losing UK Domicile
While an individual’s domicile is initially determined by their place of birth or the domicile of their parents, it can be changed through a process known as “domicile acquisition”. This usually requires evidence of a clear intention to permanently leave the UK and settle elsewhere.
Similarly, an individual may lose their UK domicile through a process known as “domicile abandonment”. This occurs when an individual demonstrates a clear intention to permanently leave their country of domicile and settle elsewhere.
There are several ways in which an individual may demonstrate a clear intention to abandon their UK domicile:
- Long-term residence abroad: If an individual spends a significant amount of time living and working abroad, this may be evidence of a clear intention to abandon their UK domicile.
- Severing ties with the UK: If an individual sells their property in the UK, closes their bank accounts, and terminates their business interests, this may be evidence of a clear intention to permanently leave the UK.
- Formal declarations: An individual may formally declare their intention to abandon their UK domicile through a variety of legal documents, such as a deed of renunciation or a declaration of domicile.
The process of losing UK domicile can be complex, and it is important to seek professional advice to ensure that all necessary steps are taken and that all legal requirements are met.
Why Domicile Matters for Tax Purposes
An individual’s domicile is an important consideration for tax purposes, as it can affect their liability for various taxes, including income tax, inheritance tax, and capital gains tax.
For example, an individual who is domiciled in the UK is generally subject to UK inheritance tax on their worldwide assets. This means that if they die with assets located outside of the UK, these assets may still be subject to UK inheritance tax.
In contrast, an individual who is not domiciled in the UK but who is considered to be a “deemed domicile” may still be subject to UK inheritance tax on their UK assets. A “deemed domicile” is an individual who has been resident in the UK for at least 15 out of the previous 20 tax years. In this case, the individual is subject to UK inheritance tax on their worldwide assets, including those located outside of the UK.