What Is Domicile And Why Does It Matter For Tax?

• Published date: 19 July 2022
• Subject Matter: Tax, Inheritance Tax, Capital Gains Tax
• Law Firm: Joseph Hage Aaronson
• Author: Mr Tom O'Reilly

WHAT IS DOMICILE?

The concept of "domicile" has been heavily discussed in the media in recent weeks. But what is domicile and why is it important?

In short (and losing a lot of the nuance) an individual's domicile is the place of their permanent home. A home is more than just a place of residence. An individual's residence is where they are currently living and this may change from year to year. Even an individual's main residence where they spend the majority of their time is not the same as their domicile.

A person acquires a domicile at birth from their father, or if their parents are unmarried then from their mother. This is known as their "domicile of origin". So Mr Smith born to English-domiciled parents has an English domicile of origin, irrespective of where he is born in the world.

An individual's domicile can change over time and if it does, the individual is said to have acquired a "domicile of choice". Two elements are required in order to establish domicile;

a) The individual must actually physically live where they intend to become domiciled, and

b) The individual must intend to reside permanently and indefinitely in that jurisdiction, with no end in sight.

For example if Mr Smith aged 30 moved from the UK to France to work for 10 or even 30 years he would not lose his English domicile as long as he does not intend to reside permanently in France. If he later decided he would like to stay in France permanently, he would lose his English domicile of origin and acquire a French domicile of choice at that stage. Alternatively, if Mr Smith intended to remain in France permanently and indefinitely from when he arrived he would obtain a French domicile of choice from the point of arrival, whether he moved aged 30 or much later in life, say to retire at 65.

WHY DOES IT MATTER?

Individuals who are domiciled outside of the UK ("non-doms") have access to a number of favourable tax regimes. Among the most useful is the remittance basis of taxation, which allows a non-Dom to shelter non-UK income and capital gains from UK tax as long they are kept offshore: Tax is paid only on foreign income and capital gains brought to (or otherwise enjoyed in) the UK. In contrast an individual with a domicile in the UK is taxed on...