individual_tax_us_tax

What is Domicile?

The taxation of overseas income and gains is entirely dependent on the residence and domicile status of the taxpayer.  Domicile is a concept of general law, and is separate from residence.

An individual is generally domiciled in the country in which he has a ‘settled intention to reside’.  In simple terms, an individual is domiciled in the country in which he has his permanent home.  An individual can have only one domicile  – it is not possible to have dual domicile status.

There are three separate types of domicile – domicile of origin, domicile of dependency and domicile of choice.

Domicile of origin

An individual normally acquires a domicile of origin from his father when he is born.  This is not necessarily the country in which the individual is born.  Domicile of origin usually follows the father, but it can follow the mother or a legally appointed guardian.

Domicile of dependency

A child will have a domicile of dependency until he or she is legally capable of changing it.  A person has a legal capacity to change their domicile on reaching the age of 16.  Until then, if the parent or guardian changes his or her domicile status, the domicile status of the child will change with them.

Domicile of choice

This is a slightly misleading term as it seems to imply that taxpayers can change their domicile at a whim.  A taxpayer can merely change his personal circumstances in such a way as to leave HMRC to conclude that he is no longer domiciled in the UK.

To lose a domicile of origin in the UK, and establish a domicile somewhere else, the individual must leave the UK and settle permanently or indefinitely in another country.  To lose a UK domicile, the individual must sever all ties with the UK and the taxpayer must demonstrate a settled intention to reside permanently in another country.

There is no single criteria which determines whether an individual is or is not domiciled in the UK.  Instead a ‘balance of probabilities’ approach is taken.  The same is true in considering whether an individual has acquired a domicile of choice in the UK.  Long term residence in the UK could be an indicator that the individual is, in fact, UK domiciled.

For inheritance tax purposes, an individual is deemed UK domicile if they have been resident in the UK for 17 out of the previous 20 tax years.

Did you Know?

  • Fact Seven

    Thanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
  • Fact Six

    The IRS is actively looking for non compliant US persons.
  • Fact Five

    It takes an average of 16 hours to do IRS Form 1040.
  • Fact Four

    There are over 500 IRS tax forms.
  • Fact Three

    Since 1916, illegal income has been taxable.
  • Fact Two

    US persons must file tax
    returns no matter where they live and work.
  • Text One

    7 million Americans abroad
    only 500,000 compliant