Determining and proving domicile

Domicile is an important issue for British expatriates. You remain liable to UK inheritance tax on your worldwide assets for as long as you are domiciled in the UK. While it can be possible to change your domicile, it depends on your circumstances and intentions and should be a carefully considered and planned process.

The basic rule is that a person is domiciled in the country in which they have their home permanently or indefinitely – the country you regard as your homeland – ‘the place where you intend to die’. You can live in Spain for years and remain domiciled in the UK.

Domicile and inheritance tax

Anyone deemed UK-domiciled is liable to 40% inheritance tax (IHT) on their worldwide assets. Each individual has a £325,000 nil rate band plus a £175,000 ‘family home allowance’ if they meet certain conditions. Any balance not used on the first death can be

By Brett Hanson, Senior Partner, Blevins Franks

partner.

While assets passed from one spouse/partner to another are generally not liable for IHT, this is only when both are UK domiciles. If this applies to you seek personalised advice.

Non-UK domiciles remain liable to IHT on UK assets.

Types of domicile mon law ascribes a domicile of origin to every individual at birth. Generally the father’s domicile, or the mother’s if single.

Domicile of dependence – applies to women married before 1974, minors and legal dependents.

Domicile of choice – As HM Revenue & Customs explains, “any individual who has legal capacity can acquire a domicile of choice”.

To acquire a domicile of choice you must be physically present and tax resident in your new country and intend to live there permanently or indefinitely.

Since HMRC could look for indications you see Britain as your homeland and may return in future, you need to sever as many ties as possible. Electing for UK succession law to apply over Spanish succession law could also be a tipping point in combination with other UK ties.

In any case, HMRC may treat you as UK-domiciled if you were tax year; you return to UK for more than a year, or move to a third country.

Proving domicile sional, specialist advice; which is very specific to your circumstances and intentions. Couples need to carefully consider if the surviving spouse may return to the UK after the first one dies.

Domicile determination is a highly specialist area; you need professional advice to ensure you get it right. If HMRC determine you are a UK domicile at death, your heirs will face an unexpected tax bill.

HMCR could request detailed information during a domicile enquiry, such as your place and nationality at birth; information on all residences since birth or available for your use; clubs, associations etc that you are a member of; your wills and professional and personal advisers. You’ll need documentary evidence and perhaps personal correspondence, electronic records etc.

Remember, it may be your heirs and/or executor who have to deal with this, so leave the paperwork in order for them.

Whether or not you have UK domicile status, there are tax planning arrangements available to reduce your liabilities. An expert in this area will help you establish your domicile status, how inheritance tax interacts with Spanish succession tax, and what steps you can take to minimise unnecessary taxes for your heirs.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.

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