Domicile for Tax Purposes

What is Domicile for Tax Purposes?

In essence, your ‘domicile’ is the country which you consider to be your permanent home. This does not necessarily equate to your country of birth or the country in which you happen to be living at present.

If you move from the UK to Spain you do not automatically acquire a new tax domicile in Spain. Domicile should not be confused with residence, which is a far more transitory concept. At this point, it is worth noting that, technically speaking, you cannot actually have ‘UK domicile’ but will, instead, have your domicile in England and Wales, Scotland or Northern Ireland.

For Inheritance Tax purposes, it is usually safe to simply refer to ‘UK domicile’, but we will see some instances where the distinction between the different parts of the UK can be quite important. It is also worth noting that the Channel Islands and the Isle of Man are not part of the UK for tax purposes, including Inheritance Tax and domicile.

Domicile of origin

At birth, each person acquires the domicile of the person on whom they are legally dependent at that time. That person will usually be their father, but it is their mother if their father is dead or their parents are living apart and they have a home with their mother, but not with their father. The domicile which you acquire at this point is known as your ‘Domicile of Origin’. As a minor, you continue to have the same domicile as the person on whom you are legally dependent. If that person changes their domicile during this period then your domicile also changes and you acquire a ‘Domicile of Dependency’.

You only become capable of having your own independent domicile when you reach the age of 16 (or, in Scotland, 14 for a boy or 12 for a girl).

Example

Farrokh was born in Zanzibar in 1946 and lived with both of his parents at that time. His father was domiciled in India and his mother was domiciled in Zanzibar. Farrokh therefore acquired an Indian Domicile of Origin. In 1960, Farrokh’s parents moved to England, taking Farrokh with them. They intended to remain in England permanently. At this point, Farrokh therefore acquired a UK Domicile of Dependency.

Re-acquiring a Domicile of Origin

If it ever becomes uncertain which country you regard as your permanent home, your domicile will revert to your Domicile of Origin. Your domicile always reverts to your Domicile of Origin under these circumstances and not any Domicile of Dependency which you may have had.

Domicile and Marriage

Marriage does not generally affect domicile. However, women other than US Nationals, who married before 1st January 1974, adopted their husband’s domicile at the date of marriage as a Domicile of Dependency.

Domicile of choice

In most cases, a person’s Domicile of Origin remains their domicile for the rest of their life. A different domicile can only be acquired, as a ‘Domicile of Choice’, where a person emigrates and can prove their intention to reside permanently or indefinitely in their new home country.

Acquiring a new domicile for tax purposes, as a ‘Domicile of Choice’, can be very difficult to prove. This is both good news and bad news since it cuts both ways and Revenue and Customs have had just as much difficulty proving that a taxpayer has acquired the UK as their Domicile of Choice as taxpayers have had in proving that they have acquired a domicile somewhere else.

To acquire a new domicile, as a Domicile of Choice, it is necessary to not only demonstrate an intention to adopt the new country as your permanent home, but also to follow this up by action and subsequent conduct. If the taxpayer abandons their Domicile of Choice, their Domicile automatically reverts to their Domicile of Origin.

Example

Brian has a UK Domicile of Origin. Twenty years ago, he relocated to Spain and became Spanish tax domiciled. He declared this intention on form P85, which he lodged with the Inland Revenue (now Revenue and Customs) shortly before he departed for the Costa del Sol.

In 2010, Brian gets a terrific offer to work in Los Angeles, so he leaves Spain and moves to California. Brian is uncertain, however, whether he wishes to remain in California permanently. As Brian’s permanent home is now unclear, his domicile reverts to the UK.

Need help understanding the taxation system?

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