Non-Domiciled UK Expats Living Abroad

Liability to UK IHT is governed by domicile and it is essential to understand that the common law concept of domicile is completely distinct from residence. It is perfectly possible to be considered a resident of more than one country (or none) in a tax year, but an individual must have a domicile and can only have one country of domicile at a time.

A ‘domicile of origin’ is attributed to every person at birth and will depend on the domicile of the appropriate parent at the time of birth. Many UK expatriates fail to realise that they remain subject to UK IHT on their worldwide assets – even when they are no longer a resident of the UK – unless they have actively shed their UK ‘domicile of origin’ and established a new ‘domicile of choice’ outside the UK.

It is possible for UK persons to acquire a new domicile of choice and it is hugely advantageous to do so. Legally, the test is simple and there is only one. Has the taxpayer formed the intent to remain in their new country indefinitely? If the answer is ‘yes’, that person is now domiciled in this new country. All the facts and circumstances are evidential but none of them are definitive apart from the question of ‘intent’.

All a person’s facts and circumstances are relevant, but none are definitive. Generally, it will be impossible to get HMRC to agree that a new domicile has been acquired for the first six or seven years of a taxpayer living abroad but thereafter, if the facts and circumstances corroborate that statement of intent, there is a good chance that a new domicile has been or can be acquired.

It is therefore essential to show permanence in the new country through such things as acquiring property and establishing social and economic ties. Losing ties with the UK is also extremely helpful but it is not essential. It is necessary only to show that the taxpayer has greater connections with a new country than he or she has retained with the UK.

Steps should be taken to properly document your intentions and then obtain an opinion from UK counsel that a new domicile has been acquired. This will give the best possible protection.

However, even where a new domicile of choice has been satisfactorily acquired, if the individual leaves that country and moves elsewhere they will revert back to their UK domicile of origin and fall back into scope for UK IHT.

The standard advice is that as soon as UK domicile is lost, the opportunity should be taken to transfer wealth into trust. Assets held in trust remain outside the scope of UK IHT forever unless the UK person returns to the UK. If they go to a third country their UK taxable estate does not include assets in trust, so UK IHT is reduced accordingly.

We strongly recommend that anyone who has any doubt about their domicile should seek expert advice at the earliest opportunity. Sovereign UK has a specialist service for determining domicile status. Our in-house team of tax experts will engage external tax counsel to provide an opinion, providing clients with the strongest filing position on this matter.