The UK invented the idea of domicile when the British Empire existed. Members of the British aristocracy would be sent away to fight or manage a part of the empire in some far away land, such as India. Of course they didn’t all return home.
Their heirs argued that inheritance taxes should not be paid on their estate’s because they died outside of Britain. Clearly that was not a situation that the tax department liked because they invented the concept of a country of domicile to ensure that these wealthy gents families would still pay their taxes. How does this history help to explain the situation in 2018?
How To Define Domicile
To use a non-legal domicile definition, it is which country a person ultimately considers to be “home”. For most people this is clear, but for those with a more international mindset, it can become tricky.
To use a legal definition, a country of domicile is applied to a person as his or her permanent legal residence, or the permanent legal residence to which they are likely to return if they currently live in another country.
A person might leave a country – perhaps for work or to travel – and so is no longer actually a resident of a nation, but it is possible to still be domiciled there. This is because the presumption is that the person will ultimately return.
The idea of returning one day is important because taxation on one’s income is based upon residence, whereas inheritance tax is impacted by one’s domicile. Therefore, while it might be of no interest to you where you are domiciled, it will be of interest to your heirs.
Not every country recognises the concept of domicile. However, since the idea originally came from Great Britain and the reach of the Empire and Commonwealth was so large, most countries that do recognise it broadly follow the definition of the British. If you are British, then you might find it useful to read this.
Are Domicile And Residence The Same?
This is an area that confuses many people. A person is resident in a country for tax purposes in any given tax year, but may be domiciled in a separate country because of their life history.
Therefore, it is possible to be tax resident in country B in one year and then move and become resident in country C in the following year, but because they were born and raised elsewhere, actually be domiciled in country A. It is this concept that makes for difficult explanations and confusion.
To provide an example, your author is a British citizen and was born – and until my late 20s – lived in England. In my late 20s I moved to Belgium for some years. I was lived in Belgium, but was still domiciled in the UK. Then I moved to Malta. Now I am still a UK citizen and still domiciled in the UK, but I am a tax resident in Malta.
How To Legally Change Your Domicile
Since a person’s country of domicile is considered to be their “permanent” home, it is not a quick process to move or change domicile. The time frames vary from country to country, but for most it would take a minimum of five years. In the UK, for example, it can take between 25 and 30 years to prove that you left and are not returning!
A person would normally need to make a permanent home in a new jurisdiction and maintain that home and life for many years.
Even then, just being away for decades might not be enough! To be certain, and especially if there is a significant estate at risk, it is important to take legal advice to inform the relevant authorities and legally change your domicile. The rules are often open to interpretation which provides work for lawyers as they do their best to explain the connection between the law and an individual’s circumstances.
It is possible for a person to have a different citizenship to their domicile and it is also possible to have a different residence as well. In fact, though it would be quite unusual, it would be possible to be a citizen of one country (France, for example), a resident of another (let’s say Spain) and domiciled in a third (such as the UK) because of a previous long-term residence. In other words, this can be quite a complicated topic…
Can A Person Have Domicile In Two Countries?
In theory, the answer is no, a person can only have one domicile. However, it must be quite clear that if the UK takes 25 years or more to accept a change, then a person could pass away in another country, having lived there for many years and the UK might still have rights under the law.
There are a number of countries in the second citizenship market whose passports enable a choice to be made. Essentially the individual is able to declare whether or not they wish to be domiciled in this new country. That is all well and good, but if they happened to pass away in their original country, then the declaration of domicile would likely be meaningless.
At this point, it becomes very complex and specialist legal advice is required. The nature and location of assets is important, as is the location in which the person passed away and where they chose to be buried and more.
What Is UK Non Domiciled Status?
London has become a global mecca for the super rich in recent decades. The combination of being a global hub, having all the freedoms and attractions of London and legal and financial hubs, makes it a very attractive city.
The result has been that many high net worth individuals have invested in real estate, bought businesses and moved themselves to the United Kingdom.
However, their tax status has been something of a hybrid because while they took up residence, they are third country nationals and have significant business and financial interests internationally. Additionally, they do not hold UK passports.
These people are often referred to as “non-doms” in the UK press.
They are eligible for UK income and capital gains tax. However, this is on a remittance basis. This means that they pay tax on their UK income and any other income that they bring into the country. If the income remains outside the UK, then it will not be taxed as income or a capital gain. This offers the ability to almost decide on their tax bill, because they can bring into the UK only as much as they need to live and no more.