Your domicile of origin is akin to your birth right, automatically assigned at birth. If your parents were married when you were born, you typically assume your father’s domicile. If not, you adopt your mother’s.

This domicile of origin sticks with you, regardless of where you roam. This is irrespective of where you were brought up or where you live now.

You acquire this domicile if your parent (who determined your domicile of origin) acquires a new domicile whilst you are under the age of 16.

Then, there’s domicile of choice. This status is your right to sever ties with your domicile of origin and declare another place as your permanent home. However, it isn’t as easy as simply packing your bags and moving to sunny Spain, for instance.

To establish a domicile of choice, two primary conditions must be met:

For example, if you moved to Spain and bought a property, changed your banking arrangements, registered with local doctors, and expressed the intention to remain there indefinitely, you could argue for Spain as your domicile of choice. However, it’s worth noting that the burden of proof falls on you. Authorities often view claims of changed domicile with scepticism, especially if it seems like a strategic move to avoid taxes.

And if you do wish to elect a new domicile of choice it’s important you ensure this is possible. You can seek a legal opinion on whether it is achievable and obtain an official legal domicile opinion. This can be held on file with your Will so as to avoid any challenges during the probate process.

Don’t be fooled into thinking that just because you have lived somewhere outside of your original domiciled country you can simply elect that to be your new domicile.

Finally, we come to deemed domicile – a concept particularly prevalent in the realm of tax law. Deemed domicile is not where your heart calls home, but where the taxman says you belong.

In certain jurisdictions, like the UK, you can be deemed domiciled for tax purposes if you were resident in the country for at least 15 of the past 20 years, or if you had your domicile of origin in that country and resided there at any point in the past three years.

This concept ensures that long-term residents can’t dodge their fair share of taxes by claiming a foreign domicile of choice. It’s essentially a legal assertion that says, “You’ve been here long enough; it’s time to pay up like a local.”

What about those who live in the UK but are domiciled elsewhere?

Non-domicile (non-dom), is a British tax status that dates back to colonial times. The current domicile rules have been part of the UK tax system since 1914. Non-dom status remains an important feature of the UK’s international tax system. Non-domiciled UK residents or ‘non-doms’, as they are popularly known, are individuals who live in the UK but claim tax on their permanent place of residence abroad.

But what does this mean for the Non Doms tax status?

Simply put, these individuals do not have to pay UK tax rates on their foreign income.

A person who is registered as non-domiciled with HM Revenue and Customs is tax resident in the UK but does not have to pay UK tax on income and capital gains earned overseas – including on company stocks or cash made from selling a second home – unless they bring their money into the UK or deposit it into a UK bank account.

However, it’s important to note that Non-doms still have to pay tax on money earned within the UK. Non-doms have to specifically apply for a tax exemption on foreign income meaning it is not an automatic designation for foreign-born residents or non-citizens.

If an individual is a UK resident but has a non-dom status, they can choose to be taxed on either the arising or remittance basis.

• Arising basis – income is taxed in the year in which it arises or is received. It makes no difference whether such income is brought back to the UK or kept overseas (i.e. taxable on worldwide income and gains).
• Remittance basis – Foreign income is only taxed in the UK if it is brought back (i.e. remitted) to the UK or is enjoyed in the UK.

UK-based income and capital gains will always be taxed on an arising basis for UK resident non-doms.

The remittance basis must be claimed annually on your tax return. If no claim is made, the arising basis applies automatically.

Individuals can opt in and opt out of the remittance basis on a yearly basis. This can be a good tax planning exercise as you will already know your income position for the tax year in question, allowing you to make an educated decision based on the full knowledge of liabilities arising in the UK.

Beware – Non-UK domiciled individuals can be treated as being deemed domiciled in the UK for tax purposes if certain conditions are met. This does not change the individual’s domicile under common law but rather their tax status in the UK. Anyone with ‘deemed domicile’ status will be taxed in the same way as an individual who is UK domiciled.

Non-doms will be classed as deemed domiciled for income tax, CGT and IHT purposes if they have been UK resident for tax purposes for 15 out of the last 20 tax years.

What’s the situation for inheritance tax for non-domiciled?

In simple terms, the estate of a non-dom would only be chargeable to UK inheritance tax in respect of UK assets. This can result in a potentially advantageous position where IHT is concerned.

Non-doms should also consider lifetime IHT planning opportunities available to mitigate their IHT position in the UK further. This is particularly relevant where they may be caught by the deemed domicile provisions in the future. This is a complex area where specialist tax advice is required.

There are also key differences with respect to the IHT allowances for Non-Doms.

Non Dom IHT

Non-doms remain entitled to the nil rate band (set at £325,000 per individual). However, they are not entitled to the full spousal exemption. UK residents and domiciled individuals can leave/transfer assets to spouses without incurring any IHT charges. This is limited to £325,000 for non-doms.

A crucial factor when it comes to tax

Determining your domicile for tax purposes

It’s important you understand your domicile status.

Domicile is a crucial factor in the UK taxation system because it impacts how an individual is taxed, particularly for income earned abroad, inheritances, and capital gains.

If you’re a resident in the UK but not domiciled in the UK, you can opt to be taxed on the ‘remittance basis’. This means you only pay UK tax on the income or gain you bring to the UK, rather than on your worldwide income and gains, Non-UK-domiciles are also only subject to IHT on their UK assets.

You might be an expat living abroad but you come from the UK. So where are you domiciled?

Individuals who are domiciled in the UK, even those that live abroad and have done so for many years, are still subject to IHT on their worldwide assets. So if you believe you may have an IHT liability, don’t think your beneficiaries will get away with not paying the tax because you live abroad. And certainly, where the intent of domicile of choice can’t be proved, you should seek advice on tax-efficient wealth transfer strategies.

This seemingly obscure term can wield considerable influence over your tax liabilities.

Get in touch to find out more.

There is no formal process for agreeing your domicile status with HMRC, But you can seek clarity on what your domicile status is. And in some cases seek an official legal domicile of opinion for your records and for the avoidance of doubt.

Domicile is a complex area of law, particularly for inheritance tax purposes. If you’re looking to claim a change of domicile, or if there’s a significant amount of UK inheritance tax at stake, you should take expert advice that is specific to your circumstances.

Whether or not you have UK domicile status, there are tax planning arrangements available to reduce your liabilities to inheritance and other taxes and steps you can take to minimise unnecessary taxes for your heirs.