What does domicile mean?
Your domicile status is decided under general law, which means it must be interpreted according to previous rulings of the courts. There are many things which affect your domicile.
Types of domicile
There are 3 types of domicile:
1. Domicile of origin
You normally acquire a domicile of origin from your father when you’re born. Your domicile of origin will often be the country in which you were born. However, if you were born in a country and your father was not domiciled there at the time you were born, then your domicile of origin may be your father’s country of domicile.
2. Domicile of choice
You have the legal capacity to acquire a new domicile at the age of 16. Broadly, to acquire a domicile of choice, you must:
- leave your current country of domicile
- settle in another country
When you reach 16, you will acquire a domicile of choice if you:
- are already living in a country other than that of your domicile of origin
- you intend to remain there permanently or indefinitely
In either case, the authorities may ask you to provide evidence that you intend to live in that other country permanently or indefinitely.
3. Domicile of dependence
Until you have the legal capacity to change it, your domicile will follow that of the person on whom you’re legally dependent, for example your father. If the domicile of that person changes, you will automatically acquire the same domicile as that person. If their domicile changes your domicile of origin will become dormant.
Before 6 April 2017, if you were resident but not domiciled in the UK, you:
- were liable to UK tax on all income and capital gains which arose in the UK
- could claim the remittance basis and only pay UK tax on your foreign income and gains when remitted to the UK
Remittance basis
Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you:
- lose tax-free allowances for Income Tax and Capital Gains Tax
- pay an annual charge if you’ve been resident of the UK for a certain amount of time
You pay an annual charge of either:
- £30,000 if you’ve been here for at least 7 of the previous 9 tax years
- £60,000 for at least 12 of the previous 14 tax years
Deemed domicile rules
From 6 April 2017, new deemed domicile rules came into force.
If you aren’t domiciled in the UK under English common law you’re treated as domiciled in the UK for all tax purposes if either condition A or condition B is met.
If you meet the new deemed domicile rules you will no longer be able to claim the remittance basis of taxation and will be assessed on your worldwide income and gains on the arising basis.
Condition A – to meet this condition, you must:
- be born in the UK
- have the UK as your domicile of origin
- be resident in the UK for 2017 to 2018, or later years
Condition B – this is met when you’ve been UK resident for at least 15 of the 20 tax years immediately before the relevant tax year.
If you were born in the UK and have a UK domicile of origin at birth, you can acquire a domicile of choice outside the UK under common law, if you’ve resided in another country with the intention of staying there permanently.
If, however, you then return to the UK on or after 6 April 2017 and become UK resident for that year, you will automatically be deemed domiciled in the UK for tax purposes, under Condition A.
If that is the case, you will not be able to claim the remittance basis of taxation and will be assessed on your worldwide income and gains on the arising basis.
You can lose deemed domiciled status under Condition B if you leave the UK and there are at least 6 tax years as a non-UK resident in the 20 tax years before the relevant tax year.
If you leave the UK before 6 April 2017, Condition B won’t be met if: you’re not UK resident for the relevant tax year, and there is no tax year beginning after the 5 April 2017 and before the relevant tax year in which you were UK resident.
Please do get in touch with us if you would like to discuss this further.
