This year has seen major changes for those in the UK advising non-domiciled clients. This article su...
This year has seen major changes for those in the UK advising non-domiciled clients. This article summarises some of the main points about the new residence rules and also reviews a recent court case involving domicile.
To start by defining the terms, domicile is a more permanent, and one might say emotional, concept of 'home', not necessarily the same as a person's current country of residence. It is acquired at birth, creating a domicile of origin. It is very difficult to abandon a domicile of origin to acquire a domicile of choice. There is also a 'deemed domicile' for inheritance tax purposes, which is a numerical test based on residence in the UK for 17 out of the last 20 tax years.
Residence relies on a more factual test, which, for the UK, looks at the number of days spent in the UK. There are two main tests: the 183-day test and the 90-day test. If you are here for 183 days or more in a tax year, you are resident in the UK in that tax year. The 90-day rule is aimed at regular visitors who do not meet the 183-day test, but who have spent more than 90 days in the UK each tax year on average over the last four years.
Days of residence
The historic position was that days of arrival and departure were not counted. The client who arrived in the UK on a Wednesday and left on a Friday was treated as having one day of residence. The initial terms of last year's pre-Budget report would have meant that the position in that example moved to three days of residence, taking effect from 6 April 2008. The measure was, however, adjusted so that presence at midnight became the key test point. The new rule now means that arriving on a Wednesday and leaving on a Friday would count as two days of residence in normal circumstances. A helpful exception to this is made for those who are in transit in a UK airport over midnight: that will not count as a day of residence so long as the client is not undertaking activities unrelated to their travel arrangements, for example being involved in a business meeting, in that transit time.
The inheritance tax rules state that a person is deemed to have a UK domicile after being resident in the UK for 17 out of the last 20 tax years. This approach to domicile applies for inheritance tax purposes only. It is possible for a client to be deemed to be UK domiciled due to being resident here for more than 17 years, yet retain their non-UK domicile for other purposes under general law. For example, in the case of Agulian & Anr and Cyganik (2006), a claim was being made under the Inheritance (Provision for Family and Dependants) Act 1975, which requires that the deceased was domiciled at death in the UK under general law (that is, not using the deemed domicile test).
The deceased, a Mr Nathanael, was born in Cyprus in 1939 but had been resident in London for about 43 years up to his date of death. He spent time in London in the 1950s and 1960s and returned to Cyprus in 1972. He was, however, forced to leave Cyprus in 1974 after the Turkish invasion. He went on to establish a substantial business in London and was engaged to be married to a woman with whom he resided in London, when he died unexpectedly in 2003.
On appeal, despite the long period of residence in the UK, the court found that Mr Nathanael was domiciled in Cyprus at the date of his death, so that his fiancee's claim under the 1975 Act failed on that jurisdiction point. It could not be proved that Mr Nathanael had ever formed the intention to live in England permanently or indefinitely. In other words, he had retained his domicile of origin and there was insufficient evidence that he had acquired a domicile of choice in London. Various factors influenced the court. Mr Nathanael's strong emotional ties to Cyprus were noted, including his circle of friends in London who were members of the Greek Cypriot community; he continued to talk in Greek and watch Cypriot television; he sent money back to his family in Cyprus and had business interests in Cyprus. He had spoken to his bank manager of his intention to retire to Cyprus.
Should you have a client who has resided in the UK for more than 17 years, it is therefore not safe to assume that your client is UK domiciled for all purposes. The client might be deemed to be UK domiciled for IHT purposes only, but the key principle remains that it is difficult to shake off a domicile of origin for other purposes.
- Julie Hutchison is head of estate planning at Standard Life. Brendan Harper is on holiday.
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