What is "domicile" and how does it affect taxation?

In a simple definition, we would say that domicile is your main country of residence or the country where your roots are rather than just your residence. And it is not the same as citizenship, nationality or residency.

Each person has only one domicile, which they initially acquire at birth. It is not necessarily the country in which you were born or in which you currently live. You have only one country of domicile and never two. You can also have your domicile in a different country from the one in which you live. But let's take them one by one to avoid confusions.

There are three main types of domicile. These are:

1. Domicile of origin: You acquire a domicile of origin at birth. This is usually the same as your father's domicile at that time, i.e. the country which your father considered to be his permanent residence on the date of your birth. This also means that, your place of residence may not be the country where you were born. If your parents were not married when you were born, you will receive your residence from your mother. If you are adopted, you get your residence from your adopted father - if there is no adopted father, you get your residence from your adopted mother.
   

2. Domicile of dependence: Until you reach the age of 16, your domicile follows that of the person you are legally dependent on - if that person changes their domicile (by choice), then yours will change too. If you were married before 1 January 1974, the spouse automatically acquires the domicile of the husband.
   

3. Domicile of choice: From the age of 16 (earlier in Scotland), a person can get a new domicile. This is called a domicile of choice. In order to get it, you must be able to prove the following:

   • You have permanently settled in the country where you are now considered to be resident;

   • You must intend to stay there for the rest of your life;

   • In general, you should cut your ties with your country of residence

NOTES: You do not have to become a UK citizen or passport holder, but these factors will be taken into account. You will need to show that you have chosen to live in the new country on a permanent basis and provide strong evidence of your intention to it.

You can also have a 'deemed domicile' in the UK for tax purposes. With effect from 6 April 2017, HMRC treats certain individuals who are not domiciled in the UK as having a deemed domicile in the UK for the purposes of income tax and capital gains tax.

Deemed Domicile / Taxation

With effect from 6 April 2017, HMRC is treating certain individuals who are not domiciled in the UK as if they are domiciled in the UK for the purposes of income tax and capital gains tax. This affects you if:

1. you live outside the United Kingdom but were born in the United Kingdom with a domicile in the United Kingdom; or

2. you have been tax resident in the UK for at least 15 of the last 20 tax years.

General Rules

If you are UK domicile and UK resident (or deemed to be UK resident): you pay UK tax on all your worldwide income and gains as they arise, regardless of whether the income and gains arise in the UK or abroad. This is called arising basis of taxation.

If you are resident in the UK and not domiciled in the UK: you pay UK tax on your UK-sourced income and gains on an arising basis. You can choose to pay UK tax on your overseas-sourced income and gains on either an arising basis or on a remittance basis (note that, if not automatically applied, the remittance option may also involve high costs).

Domicile will not be relevant to any income or capital gains you may have which arise outside the UK if you are non-resident, as non-residents are only taxable in the UK on UK-sourced income.

Regarding Inheritance Taxation (IHT)

Inheritance tax (IHT) is levied on transfers of assets by individuals. Your domicile affects the scope of IHT. Individuals who are domiciled in the UK are liable to IHT on assets worldwide, but individuals who are not domiciled in the UK are liable to IHT only on assets in the UK.

An individual may be deemed to have a UK domicile for inheritance tax in circumstances where they may not be deemed to have a UK domicile for income tax and capital gains tax purposes. For example, an individual will be deemed to be UK domiciled for inheritance tax purposes if they were UK domiciled at any point within the three years immediately preceding the transfer.

For more, please visit GOV.UK .

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ATTENTION!

This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.