The formal definition of domicile is “the country that a person treats as their permanent home, or lives in and has a substantial connection with.”
However, domicile and residence are not the same.
It is entirely possible to have lived in the same country for many years, even decades, and consider it your “home”, but still be domiciled elsewhere.
This is because once you acquire a domicile, you retain it until you replace it with another.
Unfortunately, relinquishing domicile is incredibly difficult, if not nigh-on impossible.
The reality is that many people die believing that they are domiciled overseas, only for it to be discovered when they pass on that, technically in the eyes of HMRC, they have never left home.
5 kinds of domicile
There are 5 different types of ‘domicile’, which are as follows:
Domicile of Origin
This is your initial domicile, the one which you acquired at birth.
It doesn’t depend on citizenship or where you were born; rather, you acquire your father’s domicile (or mother’s, if your parents were unmarried at the time of your birth).
For example, if you were born in the US and your parents had UK domicile at the time, then you would have dual US/UK citizenship, but your domicile would be the UK.
Domicile of Dependency
Until the age of 16, a child is considered a dependent and their domicile will change along with that of their parent’s.
Domicile of Choice
After the age of 16, it’s possible to acquire a new domicile.
However, as mentioned at the outset, this isn’t an automatic or straightforward process.
Should you try to do so, the onus is on you to provide evidence that you have “abandoned” your domicile of origin and that you have physically moved to and now reside in the new locality.
You must also show intent to remain in your chosen domicile permanently.
Some of the factors that HMRC will consider when determining your “intent” are:
- The amount of time that you spend in one location versus another;
- Location of your partner/spouse and children;
- Location of your principal residence;
- Where you are registered to vote (As things stand, once someone has been outside the UK for 15 years, they are unable to vote in UK elections. There are currently ongoing discussions regarding scrapping this rule. This is a potential trap for those who have succeeded in changing their domicile from the UK);
- Location of the banks where you maintain accounts;
- The permanence of your work assignments in a location;
- Where your driver’s license was issued;
- Where your vehicles are registered;
- Where you maintain your professional licenses or qualifications;
- Location of your real property and investments; and
- Location of your social ties.
If you retain significant ties with your domicile of origin, it is highly unlikely that you’ll be able to acquire a domicile of choice.
HMRC is extremely uncompromising in this matter.
In the UK, if someone not originally UK domiciled, i.e. “non-dom”, has been resident for 15 of the previous 20 tax years, they then become deemed UK domiciled for all tax purposes.
Someone not of UK domicile, who is married to a UK domicile person can elect to be treated as a UK domicile for Inheritance Tax (IHT) purposes.
While there is a potential benefit in doing this, it also means that their entire estate, including non-UK assets, is then potentially liable to UK IHT.
Knowing your domicile status is key to any financial plan.
Hoping that it will all “work itself out” is not a strategy here.
As with all tax planning matters, if in doubt, you should seek the advice of a qualified tax adviser to ensure you are not doing something wrong — whether unwittingly or otherwise.
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▪️Ross has been a financial adviser for the past 26 years.
▪️He specialises in working with British expats over age 50 who are looking to optimise their finances for retirement.
▪️He is qualified as a financial adviser both in the UK, as a Chartered Financial Planner®, and in the EU, as a European Financial Planner®.
▪️Ross has been an expat himself for 22 years and currently lives in Warsaw, Poland with his wife and 2 children.