Domicile is a key tax concept which helps to establish the taxation of overseas assets and affects many taxpayers. Even with the recent changes to the rules introducing deemed UK domicile after fifteen out of twenty years of UK residence, domicile will continue to be relevant, especially for people returning to the UK with a previous UK domicile of origin, who are relatively harshly treated by the new rules.
Defining the term ‘domicile’
In simple terms, your domicile is the place you regard as your true home, not necessarily the place you are currently living. Your domicile of origin, which you are born with has a particularly adhesive nature (even before the new rules) and is hard to displace, and easy to regain. Domicile is a multifaceted concept and, due to the complexities of human existence, its definitions are largely based on case law.
So when do complexities arise?
Recently I was doing some research for a technical article on domicile which involved reading some of the early case law. I was looking at a messy non-tax case from 1867. A London lawyer was trying to prove that his cousin John Udny, the apparent heir to a substantial entailed Scottish estate, was illegitimate, and hence excluded from the inheritance. It was admitted that the cousin had been born a year before his parents married but, if his father (Colonel Udny) was Scottish domiciled at the time, the marriage retroactively legitimised him. However, if the Colonel was English domiciled, John would be illegitimate.
The key issue proved to be the father’s domicile of origin, which meant looking back yet another generation to establish the domicile of the grandfather at the time of the father’s birth. The grandfather had been the consul at the Italian port of Leghorn (Livorno) at the time of the birth, so the first stage of the argument centred on whether he had obtained a new Italian domicile.
The grandfather’s activities in Italy were examined in detail, and suddenly the case came alive. He supplied British ships with fresh provisions, as evidenced to the court by correspondence with Nelson. His assets were seized by Napoleon’s forces when they took the city. Fortunately for grandson John, it was agreed that whilst he may have traded in Italy, he did this in his role as consul with strong ties to Britain, thus retaining his Scottish domicile of origin and so passing this on to his son, Colonel Udny.
The Colonel also travelled around and lived in London for many years, but regularly visited his Scottish estates and spent some time in France, thereby avoiding creditors. The London cousin tried to argue that this meant he had acquired an English domicile of choice by the time of the birth and subsequent marriage. But, as previously stated, it is hard to lose a domicile of origin and the Scottish ties remained strong, so you may be pleased to hear that John Udny retained his inheritance.
What does this case demonstrate?
It’s clear that a simple query about domicile can reveal the complexity and sheer depth of family history. The most difficult part is that a person’s domicile is largely determined by their intentions, and often, by the time there is a query, that person is not available to comment.
If your family has a complicated international history, you might want to think about the position now whilst your relatives are still available to give you background details since, as this case shows, a query may go back several generations. Similarly, if you want to change your domicile make sure you know what is involved and that you leave your heirs the records they will need.