For many of us we stay in the country we are born in. We are born in the UK, live and work in the UK then pass away in the UK. However, there are some who either emigrate from the UK to warmer, or maybe colder, climates and others who immigrate to the UK. This decision to move can affect a person’s estate. When these people pass away, we need to determine their domicile.
What is domicile? Domicile is a common law concept that courts use to determine which legal system applies to an individual when that individual has connections or has lived in multiple countries or jurisdictions. Domicile determines which jurisdiction’s laws will apply to a person’s estate but also is relevant for marriage and divorce.
In order for UK inheritance tax rules to apply you need to be classed as having been domiciled in the UK at the date of death. But what are the rules? The rules can be complex and unfortunately there is no easy answer. There have, perhaps unsurprisingly, been many cases to try and make sense of the many rules that affect a person’s domicile.
There are 3 types of domicile that a person can have:
Domicile of origin is quite simple; it is the origin a person obtains at birth. The child obtains the father’s domicile of origin if the parents are married or if the child is later adopted otherwise, for unmarried couples, the child has the domicile of their mother.
Domicile of dependency is similar. A dependant person is a child under 16 or a person suffering from significant mental health problems, and they would gain the domicile of whomever they are dependent on.
Domicile of choice is quite complex. The main principles are that a person must have actual residence in the new country, and they must have the intention to reside there permanently and indefinitely. This seems like a simple affair however, there are cases to establish what is meant by ‘reside’ and what is meant by ‘intention’. Further, HMRC will review a person’s circumstances of their life abroad and use these circumstances to make a determination as to domicile.
Some of the rules surrounding a person’s intention include where their family members are living. For example, if a person has moved to Australia and their immediate family members, being their spouse or civil partner and children, moved with them that is a strong connection to the new country. On the other hand, if a person where to move to Australia leaving their immediate family members behind, this would be seen as a weak connection to the new country. This is one of many elements that is considered by HMRC when determining domicile.
For the people who are immigrating to the UK, the rules are slightly simpler although there are still a multitude, and they were updated on 6 April 2017. This is the statutory concept of deemed domicile. One condition may be met if a person is deemed domiciled in the UK if they spend 15 of the 20 tax years immediately before the relevant tax year living in the UK. However, there are other rules that may apply and further there can be exceptions to the rule.
Domicile, whether determined using the common law or the statutory deemed domicile tests, will have an impact on your estate and needs to be considered when making Wills to ensure all aspects of estate planning are dealt with.
If you would like any assistance with your estate planning or if you are administering an estate with a domicile query, please do not hesitate to contact one of the Tax and Estate Team.
