Why Domicile Matters
Whilst it is expected that the current rules applying to non-doms will be replaced with a residence-based system, domicile remains relevant for years prior to the implementation of any changes. This will be particularly so in cases where HM Revenue & Customs seek to challenge the domicile position taken by an individual, an area in which increased activity is currently being seen.
Relevance and meaning of non dom status and domicile
Historically, domicile has been a significant concept in determining an individual’s exposure to tax in the UK. Those classified as non-doms are able to access the favourable remittance basis of taxation together with exemption from Inheritance Tax on non-UK assets.
In many countries, particularly Continental Europe, domicile is generally understood to be the place where you currently live. However, in the UK domicile has a greater degree of permanence and will, generally, be the country in which you are considered to have your permanent home, not necessarily where you happen to be residing at a particular time.
Domicile is, of itself, not a tax concept and has been the subject of numerous legal cases over the years. Whilst these cases were decided on their particular facts, there are some general principles that emerge.
Most importantly, there are different categories of domicile:
- Domicile of origin
- Domicile of dependency
- Domicile of choice
All individuals will acquire a domicile of origin at birth which, with limited exceptions, will be that of their father.
If during the time you remain legally dependant, most usually during your minority, the domicile of the person you are legally dependent on changes, then your domicile of origin is displaced by a domicile of dependency, albeit that this is relatively rare in practice.
Finally, you can change your domicile by acquiring a domicile of choice through the intention to remain permanently or indefinitely in a country, together with actual residence in that country.
Those coming to the UK with an overseas domicile of origin and having the requisite intention of leaving the UK at some point can be reasonably confident of being considered a resident foreign domiciliary for UK tax purposes although each individual case needs to be considered on their facts.
This does not however, negate the possibility of challenge and at Ritchie Phillips we have considerable experience of negotiating an individual’s domicile status with HM Revenue & Customs. If you wish to discuss the meaning of non dom status and how this may affect you, please get in touch.
