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Domicile - the impact on taxes and how to determine yours

Our People - GN
Oscar Sotiriou-Martinez
4 June, 2021

Why does my domicile matter for tax purposes?

Domicile is a concept used by the courts to determine which system of personal law applies to a person (for example in relation to marriage, wills and succession).

Domicile is also relevant in the UK in relation to a person’s exposure to income tax, capital gains tax (CGT) and inheritance tax (IHT). This is especially relevant when a person has links to more than one country.

For example, if a person is resident in the UK but not considered domiciled in the UK, then they will only be subject to tax on UK sources of income and gains, and foreign sources of income and gains are likely to be excluded (as long as they remain outside the UK).

Likewise, an individual who is not considered domiciled in the UK is only subject to IHT in respect of their UK assets.

What is domicile and where you are domiciled?

Domicile has a specific legal meaning which has developed through a long line of court cases.

Your domicile can be defined as your “permanent” home, or in other words the place where you intend to reside permanently or indefinitely. It does not necessarily reflect where you live, your country of origin, or your nationality.

You can acquire your actual domicile in one of three ways, as:

  • A domicile of origin;
  • A domicile of dependency; or
  • A domicile of choice.

Everyone has a domicile, starting with their domicile of origin at birth. It is determined as follows:

  • If you were born during your father’s lifetime and to parents who were married, you take the domicile of your father.
  • If you were born to unmarried parents (even if they subsequently married), or if your father died before you were born, you take the domicile of your mother.
  • If you were adopted, you take the domicile of your adoptive father at the time of your adoption.

Broadly, your domicile of origin can then be replaced with either a domicile of dependency, if the domicile of your father (or, in some cases, your mother) changed while you were under the age of 16, or a domicile of choice, if you establish your main residence in a new country with the intention to live there permanently or indefinitely.

However, changing your domicile of origin only causes it to lie dormant and it can be revived at any time.

Where a country is comprised of a number of different legal jurisdictions, domicile would relate to a particular jurisdiction. For example, in the UK an individual would be domiciled in England and Wales, not the UK. Similarly, in the USA, where each state has its own legal jurisdiction, domicile would relate to a particular state.

Why is domicile important?

How you acquire your domicile does not matter, because they are all treated the same for tax purposes. The main question is whether you are domiciled in the UK or abroad.

If you would like any help or advice on any issues relating to deemed domicile rules or on domicile status in general, please contact our Wills, Trusts and Probate Team for a free consultation on 020 8492 2290 or email us at sols@gnlaw.co.uk.

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