Ordinarily, I leave tax matters up to my good friend and colleague Aaron, but as part of my CPD training, I am studying UK tax as part of my annual CPD requirements, I came across the interesting subject of domicile. Now you may say, surely I am domiciled where I live? Not necessarily so. The concept of domicile is important in the UK tax system but by its legal nature, is important for other countries too.
There are three types of domicile:
1. Domicile of Origin
2. Domicile of Dependency
3. Domicile of Choice
Domicile of origin should be obvious. But it isn’t! For when a person is born, they take on the domicile of their father or, if the parents are unmarried, possibly the mother if that is the person on whom they are legally dependant. So in simple terms, it is the domicile of the parent when the child is born. For instance, a child might be born in the USA but if the parents were UK domiciled at the time of the child’s birth, then the domicile of origin is the UK or more correctly England, Scotland or Wales respectively. Similarly, a child born in England to, for example, Indian domiciled parents who have not taken up England as domicile of choice, is Indian domiciled.
A child has a domicile of dependency until they reach majority where their parents move countries, otherwise the child only has a domicile of origin which they take from the father at birth. So, let’s say a child has a domicile of origin in England, but the parents then move and choose to be domiciled in the Isle of Man. The child is therefore domiciled in the Isle of Man as a domicile of dependency, the domicile of origin is in limbo so to speak, until they reach majority.
Once the child becomes an adult, their domicile of origin revives. This can be important if, for example, as a student they remain in England, after graduating they can be automatically regarded as domiciled in England if it cannot be shown that the visit to England is only temporary in nature. If the child’s domicile of origin, however, is the Isle of Man, they can remain Isle of Man domiciled yet resident in England as long as they have a definite intention to return to the island.
Which brings us to domicile of choice. I was born in England to a Welsh father who had moved to England before I was born and therefore has a domicile of choice in England. So it’s probably the case that I have a domicile of origin in England, although I am told this might not be correct because a particular Scottish court case noted that it was impossible for a Scotsman to move to England and become English for pretty obvious reasons and I would have thought the same applies to a Welshman. However, having lived on the Isle of Man for more than half my life with no ties to the UK (I don’t have any dependants living there, own no property and only visit for holidays really) my domicile of choice is the Isle of Man as I have moved here with the intention of remaining here indefinitely. So whether my domicile of origin is Wales or England is now unimportant. As ever domicile being a legal not a tax term it is all about proving intent, if that cannot be proved then the automatic assumption will be that a domicile of choice is taken up with a move to a new country. In my case it is pretty clear that I have moved permanently to the Isle of Man. However, if it were necessary to prove this, I think, on balance of probability, the fact that I own property here, all my social and business contacts are here in the Isle of Man, my dependants also live here, I have an IOM will and anyone who knows me is fully aware that I consider myself Manx now. So, apart from the obvious point of not having been born here, it all points to a domicile of choice in the Isle of Man.
Why is it important? Under UK tax rules, it is possible to be resident in the UK but not domiciled there. For some, the payment of a non-domicile charge (which starts at £30,000) may be advantageous for tax purposes rather than paying full UK income tax. It is certainly crucial when arguing for such a status, the resident can show a definite intention to return to their domicile (either of choice or origin). This mustn’t be a vague aspiration; there has to be a definite intention with some proof. Even owning property in the other country may not be enough, but it’s a good start!
The rules of domicile are not entirely straightforward and I am only beginning to learn the intricacies of this subject. Looking at the rules and my own particular circumstances certainly helped me gain some understanding.
photo credit: Diana Parkhouse via photopin cc