What’s the point in remaining non-UK domiciled?
9 December 2018
From 6 April 2017, non-dom individuals who have been resident for at least 15 out of the previous 20 years become “deemed domiciled” in the UK.
If you are in this category then it is important to remember that being deemed domiciled is not the same as being actually domiciled in the UK under English law.
There are still important benefits to retaining your English law non-UK domicile status and thus it is worth remaining non-domiciled if your fact pattern supports it.
The English law concept of domicile broadly dictates that a non-dom will only acquire a UK domicile if he or she forms the intention to remain permanently in the UK. To demonstrate that the individual remains non-UK domiciled, there needs to be an intention to leave the UK in the event of a clearly foreseeable contingency (e.g. when the kids leave school), which is supported by appropriate objective evidence.
There must be a realistic possibility that the clearly foreseeable contingency will arise. For example, stating that you will leave in the event of winning the lottery is unlikely to be sufficiently realistic. The standard of proof required is the civil standard of “balance of probabilities”, and the burden of proof is on the person asserting the change. Therefore if HMRC wanted to argue that an individual had become UK domiciled, it would be up to HMRC to prove this, based on the available evidence. It is therefore important for individuals asserting a non-domicile status to be able to demonstrate evidence of their intention to leave the UK at some clear point in the future.
As noted above, an individual who has become deemed domiciled in the UK (by virtue of being resident for 15 years) will no longer be eligible for the remittance basis. He or she will however still benefit from the following:-
- Reduced UK IHT, income tax and capital gains tax with respect to “protected” offshore trusts established by the individual, where certain conditions are satisfied;
- The automatic rebasing of non-UK assets to their 5 April 2017 market value (only for individuals who became deemed domiciled on 6 April 2017);
- The ability to cleanse offshore mixed bank accounts before 6 April 2017 and remit clean capital to the UK tax free.
A deemed domiciled individual who acquires a English law UK domicile is no longer eligible for the above benefits and could be subject to other adverse consequences. For example, if HMRC were to contend that the individual had acquired a UK domicile in an earlier year, this could impact the domicile status of any children born in the intervening years, and could also give rise to additional tax liabilities for the earlier years.
We have noted the increase in the number of HMRC enquiries specifically in relation to individuals’ domicile status, particularly those who have been resident for a number of years. It is therefore very important that individuals asserting a non-UK domicile have appropriate evidence to support their non-domicile position, and should where appropriate seek advice. This may include getting a formal domicile opinion which can be shown to HMRC in the event of an enquiry. For individuals who are subject to an enquiry, it is important to manage HMRC’s questions appropriately. One should be cooperative but make sure that the questions remain focused and that HMRC are operating within their powers.
Individuals who are potentially at risk of a successful domicile challenged by HMRC should consider undertaking planning to “bank” the benefits of existing reliefs. For example, this might include selling offshore assets which have benefited from automatic 5 April 2017 rebasing, which would be lost in the event the individual acquires a UK domicile.
Of course it must not be forgotten that an individual’s domicile status also has non-tax consequences, for example with respect to marriage, divorce and succession rules. Depending on the circumstances, an individual may sometimes be better off from a non tax perspective by becoming UK domiciled, and may therefore wish to take legal advice.
Email: Julian Nelberg