Change of address
The laws of the UK make it clear that domicile is not easily changed.
A change in a client’s operative domicile is never to be assumed, it always has to be demonstrated by reference to the facts. The burden of proving a change of domicile rests with the party that asserts the change.
If HMRC considered that as a medium/long-term UK resident had acquired a domicile of choice within the UK, the burden of proof would rest with HMRC. Length of residence is not in itself decisive. A change from a domicile of origin to a domicile of choice is regarded by the courts as a serious step requiring clear and unequivocal evidence.
As mentioned earlier, if an individual is domiciled or deemed to be domiciled in the UK, IHT applies to their assets wherever situated. For a client domiciled overseas, IHT applies only to UK assets and there is no charge on ‘excluded property’, ie property situated outside the UK.
Medium-term UK-resident clients need to be aware of the special ‘deemed’ domicile rule. This is the 17 out of 20-year rule. Where applicable, the individual is artificially treated as UK domiciled for IHT purposes.
From April 2017, it was planned that those resident in the UK for more than 15 out of the past 20 tax years would be treated as deemed UK domiciled for all tax purposes.
It was envisaged that once a non-domicile who had become deemed domiciled under the 15-year rule leaves the UK and spends more than five tax years outside the UK, they would at that point lose their deemed tax domicile (‘the five-year rule’).
In practice, once they cease to be UK resident, their deemed tax domicile is likely only to be relevant for IHT purposes.
It was also planned that in order to have parity of treatment between UK domiciles and non-domiciles, UK domiciles who leave after 5 April 2017 having been in the UK for more than 15 years will also be subject to the five-year rule.
This would be the case even if they intended to emigrate permanently and settle in a particular place on the day of their departure – think of any clients retiring overseas. The snap election put paid to all of this.
Slimline legislation
The Finance (No 2) Bill 2017 was trimmed down to ease its passage through parliament, a strategy that worked as the bill received royal assent at the end of April.
Included among those provisions subsequently dropped were the various changes related to non-domiciles, including the reduction in the deemed domicile limit from 17 out of 20, to 15 out of 20. The key question is what, if anything, will reappear.
In the meantime, the key thing to remember is that a home outside of the UK can qualify for the RNRB.
