If you are a British expat living overseas, can you remember the time when you lost your UK domicile?
It’s not exactly a trick question, but the most likely answer is that you haven’t – even if you thought you had! For, by the law of averages, even if you moved overseas years ago, with the intention of cutting your ties with the motherland, if you were born with a UK Domicile of Origin, then in the vast majority of cases you’ll still be a UK domicile. Almost without exception, this will remain your immutable domicile of origin and it is almost impossible to relinquish it.
The problem is that so many people are unaware of this. Indeed, the sad reality is that many people will die believing that they are domiciled in some faraway location, only for it to be discovered when they pass on that, technically in the eyes of HMRC, they have never left home.
Even if you have attempted to acquire a new domicile, it is extremely difficult to come by and could be challenged by HMRC. The burden always falls on the individual to prove their complete disconnection.
The long and short is if you want to waive any UK tax liability, HMRC will want to see irrefutable evidence that all links with the UK have been severed and that there was never any intention of returning to the UK. For many, that can be a tough one to prove! And the sanctions for non-disclosure are getting tougher all the time.
So let’s clarify the difference between residency and domicile, because the two terms mean different things and from a tax perspective this is important.
Regarding domicile, when you are born, you are automatically assigned the same domicile as your father. This is what domicile of origin means. Unless there are exceptional circumstances, this won’t change. Even, if you leave the country in which you are domiciled to take up residence in another country for a considerable time and only intend to return to the country in which you are domiciled at some identifiable time in the future.
What’s more, many people are unaware that, with a UK domicile in place, it is actually one’s worldwide assets that fall under the remit of HMRC – not simply those that are physically in the UK. Regardless of how long you have been out of the country, this can have huge ramifications from a tax perspective, potentially leaving loved ones financially exposed after you have passed on.
As for residency, as far as UK tax is concerned, this is actually more clear cut; if you are present in the UK for more than 183 days in any year, then you will be liable for UK tax. No ifs or buts.
So whether you like it or not, if you were born in the UK, then you can pretty much take it for granted that you will always be saddled with your UK domicile. Misunderstandings, complacency or ignorance are no defence against UK tax rules.
But it isn’t all doom and gloom – there are ways to mitigate one’s affairs and that’s where Sterling Trust (Foresight) can help.
The fact is that there are strategies that non-UK residents can adopt before returning to the UK and we’d be happy to discuss these with you.
Making plans now and getting your affairs in order is of vital importance and a Foresight Tax Health Check would make an excellent starting point – so that nothing is left to chance, ensuring your financial affairs are in order and future proofed.
For instance, are you sure of your domicile status? Do you know which taxes might apply? How does this relate to income which may well have accrued over a lifetime? Does capital gains tax apply? Are you aware of probate fees? These are all key issues that should be clarified.
Given that it’s harder than you realise to lose your domicile of origin, we’d certainly advise that, if you are intending to return to the UK, that any tax and estate planning should be formalised before you move back.
With a clean bill of health, this could help prevent you or your loved ones from being exposed to an unexpected tax bill which HMRC will come calling for at some stage – most likely in the form of inheritance tax (IHT).