Domicile. A State of Mind…And a State of Affairs

13 February, 2014

There has been much talk recently about domicile and the tax benefits of being a “non-dom”. Despite government crack-downs (more promised by our new joint leaders) tax advantages remain. And while it is true to say that Domicile is a state of mind, without evidence and acts to back it up, your state of mind may count for nothing particularly where the Revenue is involved.
So what is Domicile?

Put simply – where you consider your true home to be. Everyone has one (and only one), but just as you can change your mind you can change your domicile too.

It is important to recognise that domicile is quite distinct from residence. Residence not surprisingly is where you actually are. But remembering that Domicile is where you consider home it is not hard to see that you can be resident in one country and domiciled in another. Home thoughts from abroad and all that.

Origin, Dependency, or Choice – what’s yours?

For most it will be your Domicile of origin: the domicile you are born with. This will be your father’s domicile unless you are born to unmarried parents when it will be your mother’s.

Domicile of origin is “sticky” – it is hard to shake off, and even if you manage that it can come back to haunt you.

It is also worth mentioning that women who married before 1st January 1974 will have taken their husband’s domicile and with it any changes to their husband’s domicile before that date. Since then this idea of a “domicile of dependency” has been stopped, and the domicile of a married woman is now assessed independently of that of her husband.

If you wish you can change your domicile by acquiring a domicile of choice elsewhere. It requires you not only to go and live in a different country, but also to adopt that new country as your home and cut most of your ties with your original homeland.

Very often it is these two latter aspects which people overlook.

And the Revenue know this.

A state of affairs

There is a list of obvious practical steps you can take to demonstrate a commitment to your country:-

  • Be sure to have local business interests
  • Maintain local bank accounts and investments
  • Maintain membership of local social, political or religious organisations
  • Make a Will under local law
  • Reserve a burial plot in the country of domicile

And if you are cutting ties with a country you are seeking to leave behind:-

  • Minimise social and business commitments
  • Avoid getting involved in politics (although in the UK at least that seems to be more honoured in the breach than the observance), religious or social groups
  • Don’t go back too often.

These are all factors which satisfy the physical presence test – the state of affairs.

But what about the all important subjective test?

A state of mind

There is no substitute for a well drafted statement of domicile. This takes the form of a potted life history setting out moves around the world, whether for work or to live (with dates), details of work and family, home ownership etc and an all important statement of intention: “At this point I decided to settle in Utopia and make it my permanent home.”

It used to be possible to obtain a ruling from the UK revenue – effectively them telling you whether you had done enough to satisfy the tests that they would apply. However that is no longer possible in practice, and your statement of domicile is unlikely to see the light of day unless and until there is some disagreement on the question. In those circumstances it can be a powerful weapon.

It’s not just about Tax

It is important to recognise that just because one country’s tax regime (and climate) may suit you better than another’s, not everything about that country will be to your liking or advantage. In many European countries for example there is restricted testamentary freedom – the law prescribes who inherits your estate on your death. And many jurisdictions won’t understand trusts (and how they are taxed), and will have different laws relating to property, divorce, citizenship etc.

Whether and how many of these laws will affect you will often itself be governed by the law of your chosen country. This can prove to be a complicated subject.

A decision of the head or of the heart

Whether you are thinking of changing your domicile or trying to keep it after changing your country of residence it is important to take proper advice (which of course PG is well positioned to provide), to follow it through and to keep proper records.

Ultimately, where you are domiciled should be a decision of the head, but one that the body, and the heart, must follow.

If you would like advice about domicile, and the tax and other legal consequences that follow, please get in touch.