Updated 4 August 2023
One of the most common issues that I find a lot of long-term British expats obsess over is their domicile and, specifically, whether they are no longer UK-domiciled.
As your domicile is a critical factor when considering your liability for UK Inheritance Tax (IHT) regardless of where you may be resident, this is a very understandable obsession!
It is also an important consideration when it comes to planning options for Income Tax and Capital Gains Tax (CGT) for UK residents. Because of this it is crucial to understand your domicile position to ascertain your current and future tax burden.
Domicile is often misunderstood and is sometimes confused with other issues such as citizenship, nationality, and tax residency. While these may well be connected, they are separate concepts.
Read on to find out about four of the main types of UK domicile and how you acquire them.
1. Domicile of origin
You normally acquire your domicile of origin from your father when you’re born, and your domicile of origin will often be the country in which you were born.
However, if you were born in a country where your father was not domiciled at the time you were born, your domicile of origin may be your father’s country of domicile.
2. Domicile of dependence
Until the age of 16, if your relevant parent’s domicile changed, so would yours as a result of being their dependent. Your domicile of dependence would then supersede your original domicile of origin.
Also, if you were married before 1 January 1974, a wife would automatically acquire the domicile of her husband.
3. Domicile of choice
Once a person reaches the age of 16, they can acquire a domicile of choice if they are both:
- Living in a country or territory other than that of their domicile of origin (or dependency) and
- Intending to remain there permanently or indefinitely.
In practice, it can be difficult to replace a domicile of origin or dependence with a domicile of choice. This is particularly true if you attempt to acquire a domicile of choice in a country where you previously had no connections. It may take significant life changes and many years to build a strong case that your domicile has changed.
4. Deemed domicile
Deemed domicile can occur where someone who is non-UK domiciled is treated as being UK domiciled under certain circumstances.
If this applies, you will be deemed UK domicile for tax purposes, such as for Inheritance Tax. We can distinguish between two types of deemed domiciled individuals:
- “Long-term residents” – individuals who have been resident in the UK for 15 out of the past 20 tax years (including partial tax years). This applies even if there is still no intention to permanently settle in the UK.
- “Formerly domiciled residents” – individuals who were born in the UK with a UK domicile of origin who have since acquired a domicile of choice elsewhere, but who have resided in the UK in at least one of the previous two tax years.
There is also a 5th type of UK domicile you should know
Having outlined the four main types of domicile, you should also be aware of a fifth, although this is far less common than the others you have read about.
This is “elected domicile” and is triggered when, for IHT purposes, you elect to be treated as a UK domicile.
This is usually to ensure they you are entitled to the full “spousal exemption” on assets being passed to you by your UK-domiciled spouse.
Our article: 9 key things for international individuals to know about UK Inheritance Tax gives you more information about spousal exemption.
Once you have made a domicile election, it cannot be revoked. However, the election will cease once you have spent four successive tax years – all must be post-election – as a non-UK resident.
You should understand and plan your domicile carefully
Your domicile and residence status will direct where and how you pay taxes.
If you are UK-domiciled, you will be subject to IHT on the value of your worldwide estates. However, if you are non-UK domiciled you will only be liable for IHT only on your UK assets, which will most commonly be land and property.
Our Guide to UK Inheritance Tax provides you with more details on how your domicile position affects your IHT liability.
Your domicile also affects where and how you pay tax on income or gains arising outside of the UK. You may find our article on the remittance basis useful.
If you do not consider and plan your domicile status you could end up paying more in tax than you need to. As a result, it is important to ensure you understand your domicile and the implications for your individual circumstances.
Get in touch
If you would like to talk through your own domicile status, then please get in touch.
You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.
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