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Domicile of choice – a roundup of recent cases

Posted: 06/10/2023

Domicile is fundamental to tax law in the UK and, in recent years, claims for non-domiciled status have been a significant source of HMRC enquiries.

Certain enquiries have reached the courts and recent decisions of the First-tier Tax Tribunal (FTT) have shone light on the court’s approach to determining a person’s domicile status for UK tax purposes. They serve as reminders of the importance of obtaining professional advice when there has been a change in your circumstances that could impact your domicile status.

Strachan v HMRC (July 2023)

In the recent case of Strachan v HMRC the court considered the taxpayer’s claim to have abandoned his domicile of origin in England, and to have acquired a domicile of choice in another jurisdiction. 

Mr Strachan had completed self-assessment tax returns (SATRs) for five UK tax years, from 2011/12 to 2015/16, on the basis of a domicile of choice in Massachusetts. If correct, this would have limited his liability to UK income and capital gains tax. HMRC disagreed and raised discovery assessment and closure notices. The question arose of how many years HMRC was entitled to investigate. Three of the tax years in question fell within the usual four year time limit. However, the earliest two tax years (2011/12 and 2012/13) fell outside the four year time limit, and for HMRC to extend the assessment window from four to six years, it had the burden of proving that: (a) Mr Strachan was careless; and (b) his carelessness resulted in the loss of tax.

The broad facts were as follows:

  • Mr Strachan had a domicile of origin in England.
  • In the tax years in question, he was living and working in England, and was tax resident in the UK.
  • Mr Strachan’s wife had a holiday home in Massachusetts, to which he intended to retire.
  • Mr Strachan said that he had a domicile of choice in Massachusetts, where he had established his ‘home’ and intended to end his days. He argued he had made the overseas home his ‘chief or principal residence’.
  • Mr Strachan had not taken any professional advice on his domicile status since 1987. 

The FTT’s findings

The court upheld (as established in previous case law) that a person’s domicile of choice is only established if a person both:

  • voluntarily fixes his ‘sole or chief residence’ in a particular jurisdiction; and
  • does so with ‘an intention of continuing to reside there for an unlimited time’.

Where a person has two homes, a domicile of choice can only be established in a jurisdiction if the person has his ‘chief or principal home’ there.

However, to establish a person’s chief or principal residence in a jurisdiction outside of the UK, it is not enough to simply have a home in that jurisdiction and to intend to ‘end their days’ there (as Mr Strachan’s lawyer had argued) – rather, all relevant factors must be considered.

When determining a person’s chief or principal residence, there must be a careful evaluation of all the facts and circumstances, and recognition that the acquisition of a domicile of choice requires ‘clear cogent and compelling evidence’.

Examples of the facts which weighed against Mr Strachan were as follows:

  • He spent the greater part of each year in London and only some weeks in Massachusetts.
  • His paid work was of vital importance to him and could only be carried out from London. Even when Mr Strachan reached retirement (at age 72) in 2015, he immediately moved to an unpaid, but still demanding, role in London and continued working there until he was diagnosed with Alzheimer’s, and stopped working for that reason.
  • Mr Strachan gave his London address as his home address on official documents, including his US tax return, his wills, power of attorney and living will.
  • Mr Strachan and his wife kept their most valuable possessions in their London home.
  • He kept his birth and marriage certificates and other personal papers in his London home.
  • In the period 2012 to 2018 he made total donations of circa £89,000 to UK (mostly English) charities. In comparison, in the same period, he donated circa £57,000 to US charities, only some of which were located in Massachusetts. 
  • London was the centre of his active social, cultural and sporting life.

The FTT held, on the evidence, that Mr Strachan had a domicile in England, and had not acquired a domicile of choice in Massachusetts. The FTT considered that he intended to leave London and ‘end his days’ in Massachusetts only if, or when, he was unable to continue with his life in London, in particular if, or when, he was unable to use his skills and experience there in paid or unpaid roles. The FTT stated, ‘it was thus entirely possible that he would continue to live in London until he passed away as the result of a sudden traumatic event such as a heart attack or stroke, and would thus never ‘end his days’ in Massachusetts’.  

In actual fact, he moved to Massachusetts in December 2021, after he became too ill to work.

The FTT stressed the importance of obtaining up to date advice, particularly when there have been significant changes to a taxpayer’s circumstances. The tribunal found Mr Strachan to be careless because he had assumed he was domiciled in Massachusetts when the ‘reasonable taxpayer in his position’ would have refreshed the advice he had taken over 25 years before. However, HMRC was unable to prove that the loss in tax would have been avoided had Mr Strachan taken advice, and was therefore out of time to enquire into the SATRs for 2011/12 and 2012/13.

Deemed domicile

The tax years in question pre-date the introduction of a rule which deems certain individuals to be domiciled in the UK for tax purposes, even if on the facts they have a domicile of choice elsewhere. On these same facts, for years after 6 April 2017, Mr Strachan would have been deemed domiciled in the UK in any case because he was born in the UK, had a domicile of origin in the UK, and was resident there.

Shah v HMRC (June 2023)

The case of Shah v HMRC concerned a deceased individual with a domicile of origin outside of the UK, who had asserted that he had retained that foreign domicile and had not acquired a domicile of choice in the UK. Asserting a foreign domicile would, again, have limited his (and his estate’s) liability to UK tax.

The FTT examined factors including the frequency of Mr Shah’s trips to India once he had moved to the UK, his family connections in both India and the UK, and the steps Mr Shah had taken to show a serious intention to retire in India (of which, unfortunately, there were none).

The FTT commented that despite there being four clear opportunities for Mr Shah to move back to India (namely when he sold his business and family home in the UK, and the deaths of his daughter and wife), he still took no steps to return to India. It felt the evidence of his intention to move back to India was ‘at best vague’, and therefore concluded that at the date of his death, Mr Shah had abandoned his domicile of origin in India and had acquired a domicile of choice in England; this was determined by the fact pattern and by the choices he had made during his life.

What about domicile statements?

Domicile statements remain important, as a way of capturing relevant information and statements of intent, however taxpayers need to be mindful of the court’s view that a person does not prove they have a domicile of choice by simply making a statement to that effect. The courts have stated that, ‘declarations of intention must be examined by considering the person to whom, the purposes for which and the circumstances in which they are made’ and in addition ‘must further be fortified and carried into effect by conduct and action consistent with the declared expression’.

As the above recent cases have highlighted, it is of vital importance to seek professional advice when assessing your domicile status. If you are subject to a domicile enquiry or are unclear on your domicile position and how it may affect your tax position in the UK, please do get in touch, as a member of the private client and tax team will be able to discuss these matters with you.

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