A question of domicile
THE WORLDWIDE estate of someone who has a UK domicile at the time of their death will be liable to UK Inheritance Tax (IHT), unless they have taken specific action to legally avoid it. But what is domicile and how do you determine your own status at any given time?
Domicile is a concept of UK common law. While an individual may be resident in more than one country, an individual under UK law may only have one domicile at any single point in time. An individual’s domicile is not necessarily the same as either his residence or nationality.
The basic rule is that a person is domiciled in the country in which he has his home permanently or indefinitely. This is often described as the country in which the person regards as his ‘homeland’ and/or the place where a person intends to die.
Your place of domicile does not have to be the country within which you have your closest personal association. A person can live in a country for many years and still remain domiciled elsewhere.
English law recognises three kinds of domicile:
– domicile of origin
– domicile of dependence
– domicile of choice
We all start with a domicile of origin that stays with us unless displaced by a domicile of choice (or in some cases a domicile of dependence). If there is any doubt about a domicile of choice or domicile of dependence, the domicile of origin automatically reverts.
What is your domicile of origin?
This is not necessarily the country where you were born, but often it will be. If you were born legitimately during your father’s lifetime, your domicile will be the same as your father’s domicile at your birth. If born illegitimately, or after the death of your father, your domicile will be the same as your mother’s domicile. An adopted child takes the domicile of the adoptive parent.
Has your domicile of origin been replaced by a domicile of dependence?
This is possible if the domicile status of your relevant parent changed during your minority. From January 1, 1974, this means up to age 16, but it was up to age 21 before that. Also, women who got married before January 1, 1974, automatically took the domicile of their husband.
As an adult, have you successfully adopted a new domicile of choice?
The first thing you need to ask yourself is if you are now habitually resident and tax resident in Portugal and if you are intending to remain settled here permanently or indefinitely. If the answer to any part of this is no, then you cannot have adopted a new domicile of choice.
Essentially, the UK Inland Revenue puts the burden of proof on you. The sort of issues that they will be looking at are:
a) Have you acquired permanent accommodation in Portugal?
b) Have you disposed of your former UK residence?
c) Have UK house contents, personal possessions and so on, been disposed of or brought with you to Portugal?
d) Have you resigned all domestic membership of UK clubs, societies, organisations etc?
e) Have you resigned all UK directorships and given up all other UK business interests?
f) Have you considerably scaled down or given up your UK investments, credit cards, loans, personal insurances, bank accounts, etc?
g) Have you made a Portuguese Will?
h) Have you obtained a driving licence in Portugal?
i) Finally, have you in all other practical purposes essentially put down roots in Portugal – learned the language, become part of the local community, intend to be buried or cremated here, etc?
If the answer is no to any of the above questions, it could jeopardise the position, unless it is consistent with your overall aim. The more questions to which you answer no, the less likely success will be, and some will clearly carry more weight than others.
Since April 6, 1996, registering as an overseas elector and voting as such is not taken into account when assessing non-UK domicile.
The danger of deemed UK domicile
If you have been domiciled in the UK at any time within the last three calendar years, or if you have been resident for UK income tax purposes for at least 17 out of the last 20 tax years, then you will be treated for UK IHT purposes as domiciled in the UK.
What this means in effect is that, it takes at least three years to shed UK domicile for IHT purposes. Even if one has a clear domicile of origin and has had no intention of changing this for a UK domicile of choice, one can be caught for IHT by being resident within the UK for the required length of time.
Unfortunately, the Inland Revenue will not give a ruling on your domicile status unless it becomes relevant for some tax purpose. There are, however, a number of ways in which your domicile status can be satisfactorily tested, but this is a minefield for the unwary and professional guidance should be sought.
