‍“It follows, therefore, that there will...be a particular moment in time at which his domicile changes if he acquires a domicile of choice which replaces his domicile of origin.

Before that moment, his domicile will have been his domicile of origin.

After that moment it will be his domicile of choice.

Locating the moment may be a difficult question of fact.”

Mr Justice Lewison, Gaines-Cooper v Revenue and Customs Commissioners. [2007] BTC 704‍

‍Definition of domicile

The legislation sitting on my desk, now running to some 20,000 pages in length, has over doubled since HMRC first insisted that “Tax doesn’t have to be taxing” in 2002.

Yet nowhere in those 20,000 pages will you find a definition of “Domicile”. Domicile is a general concept in English common law that has been adapted into use in tax, but it is also relevant for family law, succession, divorce and more. It broadly means the place where an individual considers they are from, and where they feel is home. In the UK, every individual has a jurisdiction in which they are domiciled and can only be domiciled in one jurisdiction at a time (unlike the concept of residence for tax purposes, whereby it is possible to be resident in more than one country simultaneously).

Although we refer in this article to ‘UK domicile’, we technically mean being domiciled in one of the three legal jurisdictions that make up the United Kingdom: England & Wales, Scotland, and Northern Ireland. We use ‘UK’ here as shorthand, as there is currently generally no difference for UK tax purposes (although whether a taxpayer was domiciled in England & Wales or Scotland was recently considered by the First-tier Tax Tribunal in the 2023 case of  Strachan v HMRC). It is worth bearing in mind that it may make a very significant difference in other areas of law.

‘Domicile’ may also have a different meaning in other jurisdictions; here, we talk only about the position in the UK.

‍Why domicile matters

If one is not domiciled in the UK, this gives individuals access to a different basis of taxation than individuals who are UK domiciled.

As well as only being subject to UK Inheritance Tax (IHT) on UK situs assets, non-domiciled individuals can also access the remittance basis of taxation, broadly meaning that only income and gains which are brought to or used in the UK are subject to tax in the UK. There is a charge for longer-term residents (starting at £30,000 per annum), but can result in significant income and gains being protected from UK tax.

UK resident and domiciled individuals do not have this benefit, and are subject to UK tax on their worldwide income and gains, and their worldwide assets are subject to UK IHT.

There are currently four ways an individual may have a domicile for UK tax purposes:

‍Domicile of origin

A domicile of origin is acquired from an individual’s father at birth (or mother, if their parents are unmarried). Most individuals born in the UK to UK parents will have a UK domicile of origin.

‍Domicile of dependence

Until the age of 16, an individual’s domicile follows that of whom they are a legal dependent (generally their father if their parents are married, or their mother if unmarried, or their father has died). If the adult acquires a domicile of choice elsewhere, the domicile of their dependents will also change.

Prior to 1974, the domicile of married women followed that of their husband. Thankfully that rather archaic notion was changed with effect from 1 January 1974 and since, a married woman’s domicile may not necessarily be the same as her husband’s.

‍Domicile of choice

A domicile of choice is effectively the abandonment of an individual’s domicile of origin and the establishment of a new domicile in a separate territory of the individual’s choice. As domicile is effectively an individual’s permanent home, there is a substantial burden of proof required to evidence that they have abandoned their domicile of origin, and established a new domicile of choice.

There are many tax cases concerned with an individual’s domicile of choice, Gaines-Cooper, Udny, Bullock, Shah, Coller, and Henkes to note a few. The list of domicile cases stretches towards, if not past 100. As such, what exactly constitutes a domicile of choice has been crafted and re-crafted by judges over the years, and as no one case’s fact pattern is identical to the next, there is no checklist or definitive threshold. Therefore the facts must be considered in the round. HMRC guidance says that “A wide range of evidence has to be examined in evaluating intention. No single act or circumstance is determinative; all facts, including apparently trivial ones, have to be considered.”

These facts may include having wills drafted under the law of that country, acquiring citizenship, voting in elections, social and business ties, intentions for retirement, property, burial arrangements, length of time spent in a place, the list goes on. Although some factors may carry greater weight than others, no single factor can be relied upon in isolation.

‍Deemed domicile

Individuals who have been resident in at least 15 of the previous 20 tax years are deemed to be domiciled in the UK for all taxes.

An individual who was born in the UK with a Domicile of Origin, acquires a Domicile of Choice elsewhere, but resumes UK residence can also have their UK domicile ‘revived’ for tax purposes whilst they remain resident in the UK.

Breaking a deemed domicile in the UK requires being resident outside of the UK for at least six complete tax years (although for IHT purposes, if the individual is not intent on returning to the UK, an absence of three years would break their deemed domicile).

‍Here is a scenario for you:

It is feasible for an individual to have been domiciled in the UK under several of the above methods.

John was born in the UK to a father who had a UK domicile of choice.

John has a domicile of origin in the UK 

John’s father died when John was 5 years old, and he returned to Portugal with his mother, where his mother subsequently revived her Portuguese domicile of origin.

‍John loses his domicile of origin in the UK, and gains a domicile of dependence in Portugal. At age 16, this becomes a domicile of choice in Portugal.

Now an adult, John travels around the world but finds work in London, and has been resident for tax purposes in the UK for 25 years. John considers the UK to be home and is considered to have acquired a domicile of choice in the UK.

Following the changes introduced in Finance Act (No 2) 2017, John is deemed domiciled in the UK under Condition A, as a Formerly Domiciled Resident (and will be deemed domiciled in the UK at any point when he is resident in the UK). 

‍If John’s father had not been domiciled in the UK at the time of John’s birth, John would instead be deemed domiciled in the UK under Condition B, as he has been resident in the UK for more than 15 of the previous 20 tax years. ‍

The future of domicile

HMRC are particularly active in challenging domicile statuses at present. Domicile enquiries can be somewhat intrusive, with questions on intentions, assets, and family being quite probing. As the basis of proof of domicile is a “balance of probabilities” test, rather than a “beyond reasonable doubt”, it is important, if attempting to break one’s UK domicile, to ensure that as many factors are aligned in supporting that claim.

It isn’t hard to imagine the future of domicile changing drastically over the next decade. The appetite to change the domicile rules may be slightly higher, now that Portugal has recently made a change to their Non-Habitual Residents Regime

The Labour Party in particular have been fairly vocal in their desire to reform the non-domicile regime, but there hasn’t been much detail as to what that may look like. As we get closer to an election here in the UK, and as party manifestos are published, we should get a better idea.