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Determining and proving domicile

Domicile is a very important issue for British expatriates. You remain liable to UK inheritance tax on your worldwide assets for as long as you are domiciled or deemed domiciled in the UK. While changing your domicile is not impossible, it depends on your circumstances and intentions and needs to be a carefully considered and planned process.
The basic rule is that a person is domiciled in the country in which they have their home permanently or indefinitely – the country you regard as your ‘homeland’, frequently described as the place where you intend to die. You can live in Portugal for many years and remain domiciled in the UK.
The major tax effect is that domiciles (or deemed domiciles) of the UK are fully liable for UK inheritance tax on their worldwide assets. The tax rate is 40%, above a threshold of £325,000 per individual. Transfers between couples are exempt, unless the receiving spouse/partner is a non-UK domicile.
If you have set up a permanent home here in Portugal and intend to live here until death, and ideally even to be buried here, there is good chance that you can acquire a ‘domicile of choice’ here in Portugal. In this case you would no longer be liable to UK inheritance tax on your non-UK assets, though note it takes at least three years to shed UK domicile for inheritance tax purposes.
It is essential to take professional advice in this complex matter. If you believe you have shaken off your UK domicile but HM Revenue & Customs (HMRC) determine otherwise, your heirs will face an unexpected tax bill. In practice, HMRC will not consider domicile until it becomes relevant for some tax purpose, so you cannot normally ask them for confirmation in advance.
HMRC’s manual on Domicile: Enquiries into domicile status: Schedule of useful information and documents lists the types of information that may be requested during an enquiry. Some of them are obvious, others less so. The list is not comprehensive so you may need to provide other items. Likewise you may not need everything on the list.
The list includes the following:
▪ Date and place and nationality at birth
▪ Parents’ full names and marital status
▪ Details of siblings
▪ Details of marriages/civil partnerships, divorce and long-term cohabitation
▪ Information on your children – names, dates of birth, nationalities, place of education, current locations and any other relevant background
▪ Locations of members of the extended family, with descriptions of your relationship to them
▪ List of residences from birth to date of enquiry
▪ Details of transfers of property
▪ Detailed summary of properties that have been available for your use (excluding short-term holiday lettings)
▪ Summary of educational background
▪ Information regarding any exercise of political rights in any territory, memberships of political parties and extent of your activities
▪ Professional qualifications and memberships of professional bodies
▪ Summary of membership of clubs, societies, associations, organisations etc, and level of participation
▪ Details of religious, cultural and social connections, including degree of participation and ability to speak, read and write the relevant languages
▪ Location of personal papers and any items of financial, sentimental or other value
▪ Details of any wills and the local law they are governed by
▪ Summary of any deeds, declarations etc created, including those relating to dependents
▪ Summary of your professional and personal advisers, their services and location
▪ Summary of any other connections you have with various territories – when, what form, how long, and the reason for being there
▪ Explanation of your intentions for the future. Have you made plans? What contingencies have been taken into account? What may cause you to change residence? What provision have you made for the future? What have you actually done that provides evidence for your answers to these questions?
You will need to provide documentary evidence, from items like birth certificates, to insurance policies, to wills and perhaps personal correspondence, photos, electronic records etc relating to your background, lifestyle and intentions.
Remember you may not be dealing with this yourself. It may be your heirs and/or executor who have to prove to HMRC that your estate should not be liable to UK inheritance tax. You would therefore want to leave all your paperwork in order for them.
I cannot stress enough the importance to taking professional advice here; do-it-yourself domicile determination is not an option if you want to avoid leaving your heirs any unexpected tax bills and headaches.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com