Domicile status for individuals

In recent months it is likely that you will have heard about Akshata Murty (the wife of Chancellor Rishi Sunak) and the fact that she has “nom-dom status” here in the UK. I thought I would therefore take this opportunity to look at the concept of domicile in greater detail.

Why does domicile matter to the UK tax system?

For inheritance tax (IHT) purposes, a person who is domiciled in the UK will be liable to UK IHT on their worldwide assets. However, a person who is domiciled outside of the UK will be liable to UK IHT only on their UK assets.

For income tax and capital gains tax (CGT) purposes, a person who is resident and domiciled in the UK will be liable to UK income tax and CGT on their worldwide income and gains. For a person who is resident in the UK but domiciled elsewhere, the same position initially applies – however, they are given the option to claim the “remittance basis”. This option is not available to people domiciled in the UK. Where a non-UK domiciled person elects to claim the remittance basis for a particular tax year, they will not need to pay UK income tax or CGT on their non-UK income or gains realised in that tax year (unless they bring them into the UK, at which point they will be taxed). Depending on how long they have been resident in the UK, there can be a charge of either £30,000 or £60,000 to pay to HMRC in order to make the remittance basis claim.

Strictly speaking therefore it is the claiming of the remittance basis which allows a person to potentially not pay UK income tax or CGT on their non-UK income or gains, rather than the fact that they are non-UK domiciled. They are not forced to make the claim each year. But of course it is because they are non-UK domiciled that they have such a choice available to them.

What is domicile?

Domicile is a legal concept and is different to residency or nationality. In broad terms it means the country which a person calls their permanent home.

The UK considers every person to have one domicile at a time. That domicile might change over life, but it is impossible to be domiciled in multiple countries at once.

There are different types of domicile, which are as follows:

  • Domicile of origin: This is the domicile which is given to a person at birth. If their parents are alive and married at the time of birth, the baby’s domicile of choice will be whatever domicile their father happens to have at that time. In theory this could be a different country to where the baby is born.
  • Domicile of dependency: Until a child reaches the age of 16, their domicile will continue to match that of their parent (or whoever is legally responsible for them). So if the parent’s domicile was to later change, so too does the child’s. This new domicile for the child is a domicile of dependency. Domicile of dependency also applies to any marriages which took before 1974, in that the wife automatically acquired her husband’s domicile upon marriage. This no longer applies for marriages as from 1974.
  • Domicile of choice: Once a person has reached age 16, they are considered to have the legal capacity to change their domicile. However the word “choice” is very misleading. A person cannot just declare one day that they are to be domiciled in a different country – it is far more complex than that.

Determining whether or not a domicile of choice has been acquired requires analysis of a person’s entire life. For example: their family and friends, their business interests, their property and other assets, their future intentions, their will(s), where they spend their time, their registrations (eg to vote or to drive). This is not an exhaustive list.

Individual factors may provide an indicator but they alone will not determine domicile. The entire picture needs to be considered and assessed. For this reason, it can sometimes be unclear as to whether or not a person is domiciled in the UK.

For a person to acquire a new domicile of choice, they need to both cut their ties with their current domiciled country and create new ties with the new country. If they don’t do the former, it is unlikely that their domicile will change. If they don’t do the latter, it is likely that they will revert back to the domicile of origin (this is what automatically happens for someone who otherwise would not be domiciled anywhere). The need to cut ties with your existing domiciled country means it can be difficult for a UK domiciled person to lose their UK domicile, and equally difficult for a non-UK domiciled person to gain a UK domicile. This is seemingly of relevance to Ms Murty, because by all accounts she was born with an Indian domicile of origin and has apparently not replaced it with a UK domicile of choice.

  • Deemed UK domicile: This is a tax concept only and sees a person’s actual legal domicile (as per above) being replaced with a deemed UK domicile. It applies in two specific scenarios:
    • An individual who was born in the UK and with a UK domicile of origin but has subsequently acquired a different domicile. If such an individual is ever resident in the UK (but whilst retaining their overseas domicile), they will be deemed to be UK domiciled.
    • An individual who has been UK resident for at least 15 of the previous 20 tax years.

Deemed domicile cannot be passed from parent to child. A child’s domicile of origin (or dependency) will be based on the parent’s actual legal domicile, rather than on any deemed UK domicile which might apply to the parent.

How Moore Barlow can help

If you are non-UK domiciled and would like advice on whether or not to claim the remittance basis, or indeed if you are unsure about your domicile position, please do get in touch with us.