Recent cases in the courts underpin how fundamental it is to ensure that intentions regarding domicile, i.e., where a person’s permanent home is, are backed up by facts and actions.
Historically, HM Revenue & Customs (“HMRC”) have been known to dispute an individual’s domicile status post-death, and for good reason. Once the taxpayer in question has passed away, he or she is unable to confirm their intentions regarding where they wanted to reside permanently (subject to any written statements), and assumptions can more easily be drawn based on the individual’s fact pattern during their lifetime. Even where an overriding intention has been stated and written into the will, the courts have often considered actions as better evidence than intentions. For this reason, it is important to be able to demonstrate evidence of a non-UK domicile at any given point in time, should the unexpected occur.
However, it is now becoming more common for HMRC to challenge tax return filings in situations where an individual has claimed the remittance basis (by virtue of a relevant election as a non-domiciled person) during their lifetime. Previously, this tended to be an uphill battle for HMRC, as the onus is on HMRC to demonstrate that there has been a change in the taxpayer’s domicile status. Nevertheless, recent cases, in particular Coller , have proven that it is by no means out of the question for HMRC to achieve a victory on the challenge of domicile during an individual’s lifetime.
The Taxpayer claimed the remittance basis of taxation in his UK tax returns for the tax years ended 5 April 2013 to 5 April 2016 inclusive. This was on the basis that he was not domiciled in England during these years. HMRC disagreed.
Please note that since 6 April 2017, the Taxpayer would have been unable to benefit from the tax benefits available to non-domiciled individuals as he would have been deemed domiciled in England for tax purposes as he had lived in England for at least 15 of the previous 20 tax years; for the period in question the deemed-domiciled rule did not apply.
The Taxpayer relied on having an Austrian domicile of origin as per his Father. The Taxpayer’s Father fled Nazi Germany in 1938, settling in the UK. The Father openly rejected a return to Austria but stated that he wanted to ultimately retire in the South of France as this is where he felt he most belonged. The Taxpayer’s Father died prior to the Taxpayer reaching the age of 16 years old.
The Taxpayer’s Mother had a domicile of origin in Ireland, but moved to England, where she met the Taxpayer’s Father, married and raised a family. Importantly, she remained in England after her husband’s death.
The Taxpayer was born and raised in England. At no point had the Taxpayer resided abroad full-time. In 2008, the Taxpayer visited Tel Aviv for the first time. The Taxpayer stated that he intended to relocate to Tel Aviv as soon as circumstances allowed. In 2013, the Taxpayer purchased a number of Tel Aviv apartments off-plan.
To succeed, HMRC was required to prove that one of the Taxpayer’s parents had acquired a domicile of choice in England at a relevant time, or that the Taxpayer had acquired a domicile of choice in England, and this had not changed up until the period in question.
It is worth noting that ordinarily it is necessary to become both resident in a jurisdiction and have an intention to reside there permanently or indefinitely, to acquire a domicile of choice.
The first-tier tribunal (“FTT”) found in favour of HMRC, highlighting that both parents had become deeply settled in England, and both at the time of the Taxpayer’s birth and prior to the Father’s death, the Father had acquired a domicile of choice in England. The FTT went further and stated that the proposed move to the South of France was nothing more than a pipe-dream.
In respect of the Taxpayer’s Mother, although expressing her intention to return to Ireland, the FTT found that her actions did not support this intention. Indeed, little weighting was given to the verbal statement of the Taxpayer’s Mother confirming her intentions to move back to Ireland.
Finally, the FTT found that the Taxpayer would have had (in the absence of a domicile of origin in England) a domicile of choice in England. The FTT stated that as very little thought and planning had been given to where he will ‘spend the rest of his days’, it would suggest that the default intention would have been to reside indefinitely in England. This was corroborated by the settled status of the Taxpayer’s lifestyle, business interests and family connections.
It is clear from the FTT’s conclusion that ‘intention’ needs to go beyond words and dreams. The Taxpayer’s parents acquired a domicile of choice in England as their behaviours gradually changed over time. Arguably, these changes were all a consequence of daily life rather than conscious decisions.
However, domicile is a snapshot in time and if the Taxpayer’s Father hadn’t died and had instead successfully relocated to France, the outcome in this case may have been different (or at least the Taxpayer wouldn’t have had a domicile of origin in England).
The Coller case highlights the importance of regularly reviewing your domicile status, especially when life-changing events occur. Taxpayers residing in the UK who do not want to acquire a domicile of choice in the UK should ensure that their affairs and lifestyles support a planned future departure from the UK. Taxpayers should ask themselves in what circumstances they would leave the UK? Where will they go? Have they laid down roots elsewhere?
Second or third generation non-doms should be aware that they are more likely to be intrinsically linked to the UK by family, education and career. The importance of considering where you want to spend the rest of your days seems unimportant in your early years. Further, a domicile position cannot be considered in isolation; your parents’ behaviours even in your adult-life can deeply impact your domicile status retrospectively. Elderly parents who once dreamt of retiring abroad but now prefer the home-comforts of the UK having never set roots elsewhere; did they really give you a domicile of origin outside the UK?
The phrase ‘actions speak louder than words’ has particularly underpinned these recent cases and taxpayers would be wise to keep evidence to demonstrate an eventual exit from the UK.