The significance of domicile
The professional negligence case of Mehjoo v Harben Barker has focused the attention of the accountancy profession on the issue of domicile. In that case, a non-UK domiciled individual, (“non-dom”), Hossein Mehjoo, won a claim in the High Court against his accountants who had failed to consider his domicile status in providing tax advice. We are currently awaiting the outcome of the accountants’ appeal. Whatever the decision, it has highlighted the need for practitioners to note domicile status in their client records and tailor their advice accordingly.
The incidence of UK inheritance tax (IHT) depends on a person’s domicile. An individual who is UK domiciled or deemed domiciled will be subject to IHT on all his worldwide assets, while an individual who is not UK domiciled will benefit from the “excluded property” provisions.
The concept of excluded property
There are a number of categories of excluded property, of which the most important is property situated outside the UK, owned by a non-UK domiciled individual. (IHTA 1984, s6). Excluded property is not subject to inheritance tax.
Correctly establishing your ‘domicile’ can have a big impact on your UK tax bill, especially if you have foreign income, foreign capital gains or a potential exposure to Inheritance Tax (IHT).
Domicile is a complex issue because it is not actually defined in our tax laws; it is a legal concept as to which country’s rules an individual is to be subject to, in terms of factors like marriage, divorce and inheritance/intestacy rules. Your domicile can be different from both your nationality/citizenship and residency.
Domicile of origin
Everyone has a domicile and you can only have one domicile at a time. The starting point is to look at your “domicile of origin” which you acquire at birth. This is usually your father’s domicile, but in cases where your parents were not married at the time of your birth, you will take on your mother’s domicile. It is therefore important to find out as much as possible about your family background and whether your parents had or have any overseas connections. Domicile can be a major consideration if you are making a disclosure to HM Revenue and Customs (HMRC) of previously undeclared offshore income/ gains, such as under the Liechtenstein Disclosure Facility. Your domicile status may never have previously been looked at and, more importantly, no claim may ever have been submitted to HMRC.