Insights 15.5.20 Author: Martina Fitzgerald

Domicile and its impact on an Individual’s Tax Position

Insights 15.05.2020 Author: Martina Fitzgerald

Along with residency status (click here to learn more), where you are domiciled will have an impact on how you are taxed in the UK.

What is domicile status?

An individual can be resident in more than one country, but an individual can only have one domicile. An individual is domiciled in the country of their origin, the country which they regard to hold their cultural and family roots, and where one has permanent habitual ties of a settled nature. There are different types of domicile:

  • Domicile of Origin: This is acquired at birth and is usually the domicile of your father (or mother if you were born outside marriage). Your domicile of origin is extremely hard to displace.
  • Domicile of Choice: A domicile of choice may be acquired by taking identifiable and substantive steps to acquire another domicile in a county of choice. Habitual residence or citizenship in a particular country is not sufficient to demonstrate a change of domicile. One needs to demonstrate permanent residence with settled intent.
  • Domicile of Dependence: Until an individual has the legal capacity to change their domicile (at age 16 or more), it will follow that of the person with whom they are legally dependent.  If the domicile of that person changes, the individual automatically acquires the same domicile (a domicile of dependency), in place of their domicile of origin. For women, if they were married prior to 1 January 1974, the wife would automatically acquire the domicile of her husband.
  • Deemed Domicile: If you have been resident in the UK in 15 out of the last 20 years, you will be deemed UK domiciled for UK tax purposes.

What is the impact of Domicile? 

For individuals who are UK domiciled, when they are also UK resident, they are subject to UK tax on their UK and worldwide assets as they arise. For an individual who is not UK domiciled or deemed domiciled, when they are UK resident they may be taxed in a different way – for example they may be able to claim the remittance basis.

Importantly, when an individual is UK domiciled or deemed domiciled, their worldwide estate is at risk of UK Inheritance tax for IHT purposes.

What next?

Depending on your circumstances, if you are not currently UK domiciled but you think you might become UK domiciled in future, it may be possible to take action now to protect your assets. If you would like to discuss this further, please contact one of the Private Client tax team for further guidance.