Domicile - a guide

What is ‘domicile’?

In English law, an individual’s domicile governs whether the English courts have jurisdiction in determining disputes over matters such as succession and marriage.  For over a century, Parliament has used it as a connecting factor in imposing or relieving taxation.

Domicile is not the same as either residence or nationality.  Its meaning in English law is not statutory, but has been developed by judges in cases decided over the last two centuries.

The domicile of most individuals is their domicile of origin.  The general rule is that an individual’s domicile of origin is whatever domicile his or her father had when he or she was born.  Should a child be born out of wedlock, his or her mother’s domicile at the date of birth determines the domicile of origin.  Case law has not yet clarified which domicile of origin a child of single sex married parents takes.

In general the only circumstance in which an individual’s domicile of origin ceases to be his or her domicile is if he or she acquires what is called a domicile of choice.  That can only happen if and when two conditions are both met:

• The individual’s chief or main residence is in some territory which is not the same as that of the domicile of origin.
• The individual forms the intention that that territory will be his or her only or chief residence either permanently or at least until something happens to trigger a change of mind.

Cases decided over the last 50 years have established that the acquisition of a domicile of choice is prevented by any well defined contingency which, if it happens, will cause the individual to leave the territory.  Such contingencies might include retirement, completion of children’s education, restoration of democracy in the individual’s country of origin or (as in one of the leading cases) death of a spouse.  Whether a contingency of this sort exists is not just determined by what the individual says, but requires an investigation of all the facts and circumstances to determine what the contingency is and whether, if it in fact came about, the individual would actually leave.  In many cases it is clear from lifestyle or conduct he or she would not, particularly where residence in the new territory has already extended over a number of years.

A child under 16 cannot acquire a domicile of choice.  However a child under 16 acquires what is called a domicile of dependency should the domicile of his or her father or (where applicable) mother change.  On attaining 16 this becomes the child’s domicile of choice.

A domicile of choice is lost if the individual ceases to live in the territory in question and no longer has any intention of returning there to live.  Unless a domicile of choice is acquired in some other territory, the domicile of origin revives.

The tax aspects of domicile

 The main respects in which domicile is relevant to taxation are as follows:

• An individual’s non UK assets are not subject to Inheritance Tax unless he or she is domiciled in the UK.  This is so regardless of where the individual resides.
• A UK resident individual is not taxed on foreign income and gains unless he or she is domiciled in the UK or the income or gains are brought to or enjoyed in the UK.  This, the remittance basis, requires a claim and, in certain circumstances payment of a £30,000 or £60,000 charge.  Life policy gains are not eligible for the remittance basis and a claim is not normally required where the unremitted foreign income and gains are less than £2,000.
• Certain anti-avoidance legislation directed at the UK resident settlors of non UK resident trusts is disapplied where the settlor is non UK domiciled.

In general, the judge-made rules described above determine an individual’s domicile for taxation purposes.  But there are certain circumstances in which an individual who is not UK domiciled under the judge-made rules is deemed to be UK domiciled for taxation purposes.  The two main circumstances are as follows:

• The individual has been UK resident in 15 or more of the last 20 tax years.
• The individual ceased to be UK domiciled less than three calendar years previously.

The first of these rules does not apply to the anti-avoidance rules directed at trusts, provided the trust was settled before deemed UK domicile was acquired and no property is added to the trust once deemed domicile has been acquired.  The second rule is an Inheritance Tax rule only.

There is a third circumstance in which an individual can be deemed UK domiciled for taxation purposes.  This is rarely encountered as it applies to an individual who was born in the UK with a UK domicile of origin, but has acquired a non UK domicile of choice under the judge made rules referred to above.  Should such an individual return to the UK, he or she is deemed to be UK domiciled for all taxation purposes so long as he or she is UK resident.  One year’s grace is allowed for inheritance tax (IHT).

A point to emphasise is that an individual’s domicile or deemed domicile is a status determined as a question of fact and not something he or she can elect into or out of.  For IHT purposes there is one exception, applicable where one party to a marriage is UK domiciled or deemed UK domiciled and the other is not.  In these circumstances the non-domiciled spouse is allowed to elect into UK domicile, thereby enabling the spouse exemption to be claimed.

Further details on the how the UK taxes non-UK domiciled individuals are available in CIOT’s explainer published on 18 May 2022 - UK Domicile and Non-Doms – an explainer (tax.org.uk)

Other jurisdictions

Many other countries also have rules limiting tax on those originating elsewhere and preserving liability to estate taxes for those who have left for a certain number of years after departure.  The reliefs in some countries for residents originating elsewhere are much more generous than those applicable in the UK, for example in wholly exempting foreign income and gains from tax rather than simply not taxing it if it is retained outside the relevant country.  In some countries an exemption or lower rate of tax is given for newly arrived employees.  In some cases such as Italy, Spain, France and the Netherlands these regimes are time limited and in others such as Switzerland they are indefinite.  

Where the UK and certain other common law jurisdictions are and have always been unusual is in using a judge-made concept as the relevant connecting factor.  This undoubtedly generates uncertainty, uncertainty enhanced by changes to the tax rules dating back to 2008 and 2017.

The design of any tax regime for those arriving in the UK will depend on who the UK Government wishes to come here.  Trusts and IHT may present particular difficulties that other countries have not experienced, and would need to be addressed carefully.  

This guide has been written by members of the CIOT's Private Client (International) Committee. Contributors included the committee's Joint Chairs, Giles Clarke and Emma Chamberlain, and the Vice Chair, Michelle Robinson.