Despite many calls for its abolition as a factor in determining liability to UK tax, domicile remains an important element of the UK tax code, writes Gerry Brown, trust and estate planning specialist at QB Partners.
An individual acquires a domicile when born, normally from his or her father. The child inherits the father’s domicile. This is known as a domicile of origin.
On attaining age 16, the individual can shed the domicile of origin and acquire what is known as a domicile of choice. Until a child reaches an age at which they may acquire their own domicile of choice, their domicile is that of the person on whom they are legally dependent and it follows any change in that person’s domicile.
A domicile of choice can be maintained indefinitely or the individual could acquire another domicile of choice. The individual could abandon the domicile of choice without acquiring a new domicile in which case the domicile of origin will revive.
The acquisition of a domicile of choice involves meeting a two part test. It can only be acquired where an individual is both:
- resident within a territory subject to a distinctive legal system, and
- intends to reside there indefinitely.
One of the leading judges of the 20th century stated: “A domicile of choice is acquired when a man fixes voluntarily his sole or chief residence in a particular place with an intention of continuing to reside there for an unlimited time.”
The first part of this test is easy to “prove”; the second incredibly difficult.
So much for the theory – how does this pan out in practice?
The First Tier Tribunal (Tax) was tasked with determining the domicile status of Jeremy Coller, a successful businessman who in 2012 had started claiming the ‘remittance basis’ in respect of his non-UK income.
Jeremy’s father John was born in Austria in 1918 and arrived in England in 1938 having fled to escape the Nazi persecution of Jews. He therefore had a domicile of origin in Austria. His wife Sylvia was born into a Jewish family in Dublin on 8 February 1930 and therefore had a domicile of origin in Ireland. During the Second World War, John served with the British Army and after the war established a business and lived in London. He met Sylvia in London in 1954 and they were married later that year. Their son Jeremy was born in London on 17 May 1958. John died in 1968 (when Jeremy was 10) and Sylvia died in London in 2022.
There were four possibilities:
- By the date of Jeremy’s birth had John acquired an English domicile of choice, such that Jeremy’s domicile of origin was England?
- Alternatively, had John acquired an English domicile of choice by the time of his death in 1968, so that Jeremy had an English domicile of dependency, which became an English domicile of choice, on his reaching majority in 1974?
- Alternatively, if John had not obtained an English domicile of choice by the time of his death, had Sylvia acquired an English domicile of choice after his death, such that Jeremy had an English domicile of dependency, which became an English domicile of choice on his reaching majority in 1974?
- In the final alternative, if Jeremy had an Austrian domicile of origin that remained unchanged during his minority and after he had turned 16, had he later acquired an English domicile of choice?
The evidence before the Tribunal consisted of witness statements from family members and friends, notes of a meeting with HM Revenue & Customs (HMRC), a biography of Sylvia and several thousand pages of ‘documentary’ evidence.
John arrived in England because he was compelled to do so to escape Nazi persecution; he renounced any connection with Austria; he turned his back on that country; he retained no ties or attachments with it; having arrived in England he served in the army following which he settled in North London where he started businesses, bought houses, married, had, and brought up three children.
He was a devoted family man to whom his wife and children were of overriding importance; he had a small circle of friends with whom he socialised; these were in the main Viennese émigrés; these were however deep friendships; between 1938 and 1958, when Jeremy was born, John had become deeply settled in North London.
John had acquired a UK domicile of choice by the time Jeremy was born and thus Jeremy had an English domicile of origin. The Tribunal also found that Sylvia had acquired an English domicile of choice and that Jeremy was English domiciled irrespective of the domicile status of his parents.
The sheer volume of work (and costs in terms of legal and accountancy fees) involved in presenting this case is staggering. Any individual engaging with HMRC in a domicile dispute should be aware of these cost implications.
The introduction of the statutory residence test and thus effectively deemed domicile rules for income and capital gains taxes as well as inheritance tax will reduce the number of such disputes, but there will still be cases where a reference to the Tax Tribunal can’t be avoided.
This article was written for International Adviser by Gerry Brown, trust and estate planning specialist at QB Partners.
