This article explains the concept of UK domicile and the number of different ways UK domicile can be acquired.
There are a number of different ways to acquire a UK domicile which will be considered below.
Domicile of origin
Domicile of origin is the domicile acquired at birth, normally that of the father. However, if the parents are unmarried or the child was born after the death of the father, then the mother’s domicile will normally be acquired. The domicile of origin can differ from the country of birth, as it follows the domicile of the relevant parent.
Rebecca and James (both married, resident and domiciled in the UK) emigrate to Canada where, some years later, Harry is born. Harry is both Canadian and British in nationality but, since James has not acquired a domicile of choice in Canada, Harry’s domicile of origin is the UK even though he has not stepped on UK soil!
Under the general law, an individual will retain their ‘domicile of origin’ until a different domicile is acquired – either a ‘domicile of dependency’ or a ‘domicile of choice’.
Domicile of dependency
A child’s domicile will follow that of the person on whom they are legally dependent and is known as ‘domicile of dependency’. If the domicile of that person changes, the child’s domicile will change in place of their domicile of origin. So if the father’s domicile changes after the birth of a child, the child follows that new domicile as a domicile of dependency.
Prior to 1 January 1974, a married woman automatically acquired the domicile of her husband, an example of a ‘domicile of dependence’. She retained that domicile until it changed by the acquisition of a new, or revival of a former, domicile. If the marriage ended, the woman retained the domicile of her husband until such time as she legally acquired a new one.
In 1967, Esperanza (domiciled in Spain) married Peter (domiciled in the UK) and automatically acquired his UK domicile. In 2007, having lived in the UK for the whole of their married life, they both retire to Spain. In order to escape (eventually) any liability to UK IHT, they will both have to take steps to acquire a domicile of choice. Curiously, were it not for the pre-1974 rule and if Esperanza had acquired a domicile of choice in the UK, her domicile of origin would revive on retiring to Spain.
As a result of the change in the law as at 1 January 1974, the domicile of a married woman will no longer necessarily be the same as her husband’s. Instead it will be decided by reference to the same factors as apply to any other person capable of having an independent domicile.
From 1 January 1974, any person in England, Wales or Northern Ireland who is married or over the age of 16 years is capable of acquiring an independent domicile – ‘a domicile of choice’. The rules are slightly different in Scotland, as any girl over 12 or boy over 14 is capable of acquiring an independent domicile.
Domicile of choice
An individual can try to acquire a new domicile (a domicile of choice) by settling in a new country with the intention of living there permanently.
It is very difficult to acquire a new domicile. There are no fixed rules as to what is required to do this and the burden falls on the individual to prove they have acquired a new domicile.
Living in another country for a long time, although an important factor does not prove a new domicile has been acquired. There also needs to be the necessary intention of living there permanently.
UK HM Revenue & Customs make a judgement after reviewing the ties with the domicile of origin and those with the domicile of choice. Disposing of assets in the country in which you were previously domiciled may help support a claim. It is unlikely that a domicile of choice will be acquired if there are still ties (other than insignificant ones) with your domicile of origin.
If we consider the case of Charles Clore, a wealthy businessman, left the UK in the mid-seventies to spend time in France and Monaco in order to avoid a large potential capital gains tax liability. He visited London in 1979 where, tragically, he died. His executors, hoping to avoid substantial death duties, claimed that he had acquired a domicile of choice in Monaco. Unfortunately, he had told his lawyers that he was homesick and missed England. That was enough for the UK tax authorities to show that he had never actually ‘settled’ in Monaco and his estate was assessed in the order of £30 million in death duties.
An objective intention to remain in a new country needs to be proved by actions rather than by just a claim of intention. The following actions could be used to help support a claim for a new domicile of choice:
- Establishing a permanent home in the new country
- Gaining citizenship or nationality in the new country
- Establishing a business or getting a job there
- Having children educated there
- Living there with your spouse/partner
- Voting there
- Making funeral arrangements there.
If you abandon your domicile of choice, your domicile of origin will revive and continue until another domicile of choice is established.
If Malcolm, who has a domicile of origin in the UK, moves to Japan permanently, he may acquire a domicile of choice in Japan. If, some years later, Malcolm changes his mind and decides to leave Japan, while he is still resident in Japan (i.e. he has decided to leave but not yet left) his domicile of choice will not change. If, however, he does eventually leave Japan to live, say, in New Zealand, his domicile of choice in Japan will end and his UK domicile of origin will revert. Until Malcolm decides that he definitely wants to stay in New Zealand rather than, say, just somewhere in the Australasian sub-continent, he will be unable to establish a new domicile of choice.
The on-going challenge for the adviser is to review a client’s individual circumstances and ensure that a client is aware of what their current domicile is and if any uncertainty prevails they will need to look what steps (if any) can be taken to remove this uncertainty. This should also include consideration of the client’s spouse or civil partner (if they have one) domicile and if this poses any IHT mitigation opportunities.