THE OFFSHORE COLUMN
Changing your domicile
Domicile has got to be just about the strangest legal concept that any system has, which is crucial for deciding tax liabilities, but somehow the system works.
See past articles in this series for all the workings-out of the domicile rule in practical terms, but for now let’s just take it that being non-UK-domiciled is good, and being UK-domiciled is bad. It’s certainly true to say that there are no situations where we can think of where non-UK domicile can be a disadvantage, and it can often be a huge advantage, for example in freeing your entire investment portfolio from capital gains tax (CGT) by using offshore trusts.
So we thought it would be useful to explore the idea of changing one’s domicile. Is this possible? If so, how do you do it?
Adhesive
It’s reasonably well known that domicile has an ‘adhesive’ quality, that is it’s very difficult to change it. But ‘difficult’ isn’t the same as ‘impossible’.
From the tax-planning point of view, it’s likely that a person who wanted to change their domicile would want to change it from a UK to a non-UK domicile.
Domicile is adhesive because it is a fundamental fact about a person, and we have defined it a number of times as being where a person ‘belongs’ or ‘comes from’. So if you are English, or Scottish, for example, it’s very likely that you will continue to be English or Scottish, as the case may be, for your whole life, even if you take up residence in some other country on a permanent basis. ‘Domicile’ is definitely not the same as ‘residence’, as an idea.
So, in order to change your domicile, what can you do?
First, you need to find another country to adopt as your permanent home. Having adopted, and physically moved to (it’s difficult to establish a new domicile unless you actually live in the country concerned), a new country, you then need to gather as much information and evidence as possible to prove that you intend to live permanently or indefinitely in that new country. Obviously, owning your main home there has got to be high on the list of essentials, but on top of this you should make your will under the law of the new country, preferably learn its language if it isn’t English and build up a network of social and organisational relationships (for example membership of clubs or even political parties) in the new country. It isn’t possible to go too far in the direction of establishing your new country of ‘belonging’.
The second thing you should do is the converse of this, and it is cutting off, as far as possible, your links with your original country of domicile, that is, probably, with the UK. This means, amongst other things, preferably not making lengthy return visits, not retaining property in the UK available for your use, not retaining substantial investments in the UK and quitting all your clubs and organisations etc.
This second requirement, obviously, is likely to be a harder one to meet than the first, but if you were serious about losing UK domicile it would be very foolish indeed to neglect this side of things.
Domiciles of choice
Things are much easier for individuals who were originally domiciled outside the UK. Sometimes it is possible for them to acquire a domicile of choice in the UK by coming to live here permanently and cutting off all ties with their country of origin. In fact, some non-UK domiciliaries can have been born here and lived all their lives here while still having a non-UK domicile of origin.
These people will find it much easier to lose UK domicile, because if you abandon the UK as your domicile of choice, your domicile of origin automatically revives, and this is so even if you have never set foot in that country.
Finally, a word of warning for those who have tried to change their domicile to save inheritance tax: since domicile is such a vague and woolly concept, you won’t know until after you’re dead (so to speak) whether you have succeeded! If you retain assets in the UK, these will, in any event, be liable to inheritance tax on your death even if you have successfully changed your domicile, so the smart move has got to be to take as much as possible (preferably all) of your assets out of this country so that, if the worst comes to the worst, the UK Revenue can’t get its greedy hands on it.