‘Domicile’ and ‘residency’ are terms often used interchangeably, but for legal and taxation purposes in the UK, they are separate and distinct.
Domicile is a legal concept that describes the country in which you officially have, or you believe to have, your real or permanent home. This is not, however, the same as ‘residence’.
Residence is where, for tax purposes, you spend your time. You can be UK resident, even if you are not domiciled in the UK. You can be domiciled in a different country from where you are ordinarily resident.
Domicile is therefore not necessarily where you are living right now, but rather the place that you regard as where you belong – typically the place in which you have the closest ties and you will eventually choose to live indefinitely.
Domicile meaning: Significance of ‘domicile’ and ‘residence’ status
It is important to determine your domicile and residence status for a variety of reasons, not least in relation to establishing your tax liabilities and any entitlement to tax allowances and exemptions on foreign income and gains.
If you are UK resident you will normally pay tax on any income and capital gains from abroad, although relief may be given under the double taxation agreements for any tax already paid. It is possible to be tax resident in both the UK and another country at the same time, known as ‘dual residence’.
Foreign income can include foreign investments and savings interest, rental income on overseas property or pensions, or wages from working abroad. Foreign gains refer to, for example, where you sell a second home.
However, non-domiciled UK residents may not have to pay UK tax on foreign income and gains. There are special rules for UK residents whose permanent home, or domicile, is abroad. There are also additional rules in relation to domicile status and liability to inheritance tax.
Domicile meaning: determining ‘domicile’ status
There are no strict criteria in determining your domicile status. In accordance with general common law principles and previous court rulings, the following factors may give a good indication that you might be domiciled in the UK:
- You were born in the UK
- You have lived here for most of your life
- You are now living here permanently.
In determining your domicile status, the following factors should also be taken into account:
- You are normally regarded as domiciled in the country where you have your permanent home
- Your domicile is distinct from your nationality, citizenship and your residence status, although these can have an impact on your domicile
- You cannot be without a domicile
- You can only have one place of domicile at a time
- Your existing domicile will continue until you acquire a new one.
Domicile meaning: Determining ‘residence’ status
Whether you are UK resident usually depends on how many days you spend in the UK throughout the tax year in question. Under the ‘Statutory Residence Test’, you are likely to be treated as UK resident for tax purposes if:
- You spend 183 or more days in the UK in the tax year
- You have a home in the UK, and don’t have a home overseas
- You work full-time in the UK over a period of 365 days.
Even if you do not satisfy these conditions, you could still be treated as UK resident. However, this will depend on the number of connections you have to the UK and the amount of time you spend here.
Domicile meaning: Different types of ‘domicile’
There are three main types of ‘domicile’ as follows:
- Domicile of origin
- Domicile of choice
- Domicile of dependence.
Domicile of origin
Every individual has a domicile of origin that they automatically acquire at birth. This is usually the same as the domicile of your father at that time, ie; the country that your father considered to be his real or permanent home at the date of your birth. Consequently, your domicile may not be the same as the country in which you were born.
If your parents were not married at the time of your birth, your domicile of origin will usually be acquired from your mother. Your domicile of origin may change if you’re adopted, taking your adoptive father’s domicile or, alternatively, your adoptive mother’s where there is no father.
Domicile of choice
At the age of 16, you have the legal capacity to change your domicile. Broadly speaking, to acquire a domicile of choice, you must have met the following minimum requirements:
- Settled permanently in the country in which you now consider yourself domiciled
- Intend to remain in that country on a permanent or indefinite basis.
If required to prove your domicile of choice, you may need to provide cogent evidence of the above, including your permanent place of residence, as well as detail of your business, social and family commitments.
Whilst it is possible to change your domicile, your domicile of origin is not easy to displace. You must not only establish strong links in the country that you intend to remain, you must also lose, or at least weaken, those with your domicile of origin to show that this is no longer your permanent home.
Domicile of dependence
Until you have the legal capacity to change your domicile of origin, it will follow that of the person on whom you are legally dependent. If the domicile of that person changes, you will automatically acquire the same domicile as that person and your domicile of origin will become dormant.
Until 1 January 1974, a wife acquired her husband’s domicile. Whilst the law has changed so that wives now have independent domicile based on their own history, actions and intentions, the domicile of dependence status of those married before 1 January 1974 is retained until a new one is established.
Domicile meaning: Complications arising from ‘domicile’ status
HMRC does not usually challenge an individual who claims they have a UK domicile. However, if you say you are non-UK domiciled, particularly if you were born in the UK, you may find yourself the subject of in-depth checks by HMRC as to your background, lifestyle and intentions over the course of your lifetime.
Domicile can be a complex subject, wholly dependent on the facts of your individual case. There are various generic factors that can give you a strong indication. However, if your practical and financial affairs are especially complex, your domicile status can be hard to determine with any degree of certainty. Further, in the UK, only a court can make a formal ruling on your domicile.
Seeking legal advice to establish your domicile status
An individual’s domicile and residence status can significantly affect their tax position. In most cases your status will be fairly obvious, but if your affairs are not straightforward, with income and capital gains from various different jurisdictions, it can become quite complex.
You may have to consider the tax rules in more than one country, and even look at double taxation agreements to determine your tax liability. If a significant amount of tax is at stake, you should certainly seek professional help from a specialist in tax law.
Further, in the event that there is any uncertainty as to your domicile and residence status, you should again seek specialist advice. In this way you can justify any declarations made to HMRC, helping to avoid any penalties if your domicile and residence status is subsequently challenged.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.