While the concept of acquiring a domicile (deemed) after 15 tax years of UK residence is familiar to many, it is vital that common law domicile is not overlooked.
The recent judgement (all 57 pages of it) of the First-Tier Tax Tribunal delivered by Tribunal Judge Nigel Popplewell in Jeremy Coller v HMRC 1 provides an excellent reminder. Briefly, the facts were that Mr Coller claimed, for the purposes of claiming the remittance basis of taxation, that he was not domiciled in the UK 2 by virtue of his parentage. All domicile cases are, by their very nature, fact specific but the Tribunal Judge went above and beyond to provide a thorough exposition of the law of domicile in his application to Mr Coller's life history and addressed a number of issues which often arise in such cases.
What is domicile?
The common law concept of domicile stands alone from citizenship, tax residence or habitual residence. In very general terms, domicile can be described as an individual's permanent home.
Of course, domicile means different things to different people in different locations. For example, in French, "domicile" translates as "home" (which is its natural meaning in English, too and one reason why it is open to being misunderstood) and so it is understandable that the UK's concept of domicile could easily become blurred with tax residence. This, coupled with the fact that domicile is not a concept that exists under many jurisdictions, can mean that uninitiated foreign advisors are often not alive to its complexities and risks.
Back in the UK, in many cases, an individual 3 is domiciled where their father's domicile was at the time of their birth. This is referred to as an individual's 'domicile of origin.'
There are two further types of domicile – a 'domicile of choice' and 'domicile of dependency.' A domicile of choice can be acquired where an individual has actual residence in a new jurisdiction and has an intention to live there permanently or indefinitely. Once acquired (and crucial for the case in question), a domicile of choice will displace a domicile of origin.
A domicile of dependency applies only to unmarried children under the age of 16. In this instance, an individual will have a domicile which generally follows that of their father until the child reaches 16.
The common law concept of domicile should not be confused with the statutory concept of deemed domicile. In 2015, the general election brought about tax reforms which were implemented from 6 April 2017. From this point, an individual was treated as deemed domiciled when they have been UK resident for at least 15 of the 20 tax years 4. What is vital to bear in mind however, is that a common law domicile of choice can be acquired well before 15 years have elapsed, and this can have significant inheritance tax (and other) implications.
In the absence of a statutory test for domicile, landmark domicile cases such as this are vital in demonstrating to practitioners how HMRC might assess domicile.
Why does domicile matter?
An individual's domicile can be a crucial factor in a range of legal and tax issues, such as whether:
- the favourable remittance basis of taxation is available for income and capital gains tax purposes;
- an estate is liable to UK inheritance tax on worldwide assets (because the deceased was UK domiciled) rather than just on UK situs assets;
- the law of the individual's domicile or the law of the situs of an asset applies for succession purposes;
- a claim under the Inheritance (Provision for Family and Dependants) Act 1975 can be made, as the legislation only applies to estates where the deceased was UK domiciled;
- an individual can bring divorce proceedings in the UK; and
- the helpful rules which protect foreign income and gains arising in certain trusts, where the settlor has become deemed domiciled apply, provided they are not UK domiciled under the common law.
And it cannot be ignored that domicile and the UK's favourable "non-dom" tax regime has been the subject of much media coverage following significant political limelight.
The case
Given the increasing number of domicile challenges by HMRC, this decision is a salient reminder, if one were needed, that individuals should apply more scrutiny to their circumstances. The proverb "Actions speak louder than words" clearly applies in domicile cases, with close examination by the Tribunal of the lives of the appellant and both of his parents. Although unusual in that most domicile decisions relate to a deceased taxpayer, the same principles apply and were summarised by Mummery LJ in Cyganik v Algulian [2006] EWCA Civ 129: "The court must look back at the whole of the deceased's life, at what he had done with his life, at what life had done to him and at what were his inferred intentions in order to decide whether he had acquired a domicile of choice in England by the date of his death. Soren Kierkegaard's aphorism that "Life must be lived forwards, but can only be understood backwards" resonates in the biographical data of domicile disputes."
The facts of the case could have been set as a law school exam question as the central issues which the Tribunal had to consider included (unusually) a domicile of dependency that changed not only due to the disputed acquisition of a domicile of choice by the appellant's father, but also due to the death of the appellant's father before the appellant attained the age of 16. This compelled consideration of his mother's own disputed domicile of choice, not to mention the total absence of ties between the appellant and his claimed domicile of origin. Furthermore, the circumstances in which both parents arrived in the UK raised interesting points.
In this case the appellant's father fled from Austria to England to escape the Nazi persecution of Jews. The courts have determined 5 that if a person takes up residence in another county as a political refugee, he does not acquire domicile in that country unless he forms the intention of residing there permanently or for an unlimited time. Counsel for the appellant Mr Coller, argued (unsuccessfully) that "It is not enough for HMRC to prove facts which could be consistent with the intention or not having the intention was simply not having made up one's mind. The domicile of origin endures unless and until HMRC satisfies us that there was the necessary intention. And that intention must be a positive settled determination of intent. It must be more than simply carrying on living where you are and not thinking about it".
Rule 14, stated in Dicey, Morris & Collins on the Conflict of Laws 6 (the leading authority for those who advise in this area), provides:
Rule 14
"... in determining whether a person intends to reside permanently or indefinitely in a country the court may have regard to:
- the motive for which residence was taken up there;
- the fact that the residence was not freely chosen;
- the fact that the residence was precarious."
Unfortunately for Mr Coller, it was of importance to the Tribunal that his father had no wish to return to the place of his birth and his domicile of origin; indeed the judge believed it was clear that he intended to abandon his domicile of origin. Although it was acknowledged that, whilst it is not possible, legally, to abandon a domicile of origin without having acquired an alternative domicile of choice, in practical, nonlegal terms, the Tribunal found that this is what the appellant's father did.
The commentary in Dicey goes on to provide:
"A person who leaves a country as a political refugee...has a special motive for leaving it, but they may have no special motive for entering any other particular country, nor is residence in another country in any sense enforced. The question which causes more difficulty in cases of this kind is whether the fugitive intends to abandon a domicile in the first country: if they do, the acquisition of a new domicile in the second country will readily be assumed.... If a political refugee intends to return to the country from which they fled as soon as the political situation changes, they retain a domicile there unless the desired political change is so improbable that the intention is discounted and treated as merely an exile's longing for the native land; but if the intention is not to return to that country even when the political situation has changed, a domicile of choice can be acquired in the country of refuge. 7"
The judgement
Less than half way through the judgement, the Tribunal concluded "To our mind it is clear that John [Mr Coller's father] had intended to abandon his domicile of origin in Austria. He achieved this by acquiring a domicile of choice in England. His purported intention to retire to France was of the "vague variety" 8 He had become deeply settled in England with which he had a singular and distinctive relationship, by the date of Jeremy's birth in 1958, and certainly by the date of his own death in 1968. HMRC's evidence that this is the case is clear and compelling. It is our view, and we find as a fact, by way of an inference based on the primary facts, that by both dates John had made up his mind consistent with his permanent home and way of life in England, to live in England permanently and indefinitely. He had, therefore, an English domicile of choice by the date of Jeremy's birth in 1958 and by the date of his own death in 1968".
Aside from providing a comprehensive review of the relevant case law, the decision is helpful aide memoire both as to the standard and the burden of proof.
As to the standard of proof, the Tribunal cited the judgement of Scarman J in Re Fuld 9
"what is the standard of proof: is it to be proved beyond reasonable doubt or upon a balance of probabilities, or does the standard vary according to whether one seeks to establish abandonment of a domicile of origin or merely a switch from one domicile of choice to another? ... The formula of proof beyond reasonable doubt is not frequently used in probate cases, and I do not propose to give it currency. It is enough that the authorities emphasise that the conscience of the court ....must be satisfied by the evidence. The weight to be attached to evidence, the inferences to be drawn, the facts justifying the exclusion of doubt and the expression of satisfaction, will vary according to the nature of the case. Two things are clear – first, that unless the judicial conscience is satisfied by evidence of change, the domicile of origin persists: and secondly, that the acquisition of a domicile of choice is a serious matter not to be lightly inferred from slight indications or casual words".
The burden of proving a change of domicile rests on the party who alleges it 10 which in this case was HMRC. It was not for the appellant to show that his father had either not abandoned his domicile of origin or had acquire a domicile of choice in a jurisdiction other than England, it was for HMRC to prove that his father (or mother, following her husband's death) had acquired a domicile of choice in England such that the appellant had an English domicile of dependency.
The Tribunal identified four key issues to be determined, which are set out below:
- Whether by the date of the appellant's birth on 17 May 1958, had his father acquired an English domicile of choice, such that appellant's domicile of origin was England
- Whether the appellant's father had acquired an English domicile of choice by 31 August 1968, the date on which he passed away, such that Jeremy had an English domicile of dependency, which became an English domicile of choice, on his reaching majority on 17 May 1974
- Whether, if the appellant's father had not obtained an English domicile of choice by the time of his death, had his mother acquired an English domicile of choice after her husband's death such that the appellant acquired an English domicile of dependency, which became an English domicile of choice on his reaching majority on 17 May 1974
- Whether, if the appellant's Austrian domicile of origin (acquired if his father's domicile had had not changed) remained unchanged during his minority and after he had turned 16, he had acquired an English domicile of choice on or before 5 April 2012.
But for the appeal to be dismissed, HMRC only had to succeed in proving a change in domicile in relation to one of the four. However the bonus for practitioner is that, in for a penny, in for a pound, the Tribunal considered every issue and the judgement provides a consummate summary of the significant body of case law which determines the English common law rules on domicile.
The decision reaffirms that both pipe dreams and statements of intention are of little evidential value particularly when they are inconsistent with the actions (or inactions) of the individual purporting to rely on them.
Footnotes
1. [2023] UKFTT 212 (TC)
2. Strictly speaking an individual is domiciled in one of the constituent legal jurisdictions of the United Kingdom being England and Wales, Scotland or Northern Ireland, but reference is made to the UK for the purposes of this article
3. If legitimate. An illegitimate child takes the domicile of their mother at birth.
4. Before 6 April 2017 an individual became UK domiciled if they were resident in the UK for 17 of the 20 tax years.
5. May v May [1943] 2 All ER 146
6. 16th Ed at para 6-R056
7. Ibid para 6-064
8. Musa v Holliday[2012] EWCA Civ 1268 para 69
9. Re Fuld [1968] P. 675.
10. [fn. Fuld (No.3), In the Estate of [1968] P. 675 at 685; Winans v Attorney General [1904] A.C. 287; Ramsay v Liverpool Royal Infirmary [1930] A.C. 588; Re Lloyd Evans [1947] Ch. 695; Morris v Davies [2011] EWHC 1773 (Ch); [2011] W.T.L.R. 1643; Kebbeh v Farmer [2015] EWHC 3827 (Ch)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.