In December 2002, I wrote about a case with Hong Kong connections, Civil Engineer v Inland Revenue C...
In December 2002, I wrote about a case with Hong Kong connections, Civil Engineer v Inland Revenue Commissioners, which tested the concept of domicile. Another case with Hong Kong connections has recently been made public, and tests the concept of domicile of choice.
In Surveyor v CIR Sp C339, the question was whether an individual, who had a domicile of origin in the UK, had successfully acquired a Hong Kong domicile of choice. The taxpayer took up residence in Hong Kong in 1986 and, in 1990,he married a UK national, also resident in Hong Kong, and they had three children, all of whom were born in Hong Kong.
In 1992, he was given the option to return to the UK, but he refused and in 1997, when the handover to China was imminent, he and his wife successfully applied for the right of permanent abode in the territory. In 1998, he purchased some land in Thailand and eventually built a large holiday home there. In early 1999, the taxpayer's accountant wrote to the Inland Revenue requesting a ruling on his domicile, attaching form DOM1, which had been completed by the taxpayer.
He had stated in the form that he considered his home to be Hong Kong, and that he intended to remain permanently in the Far East, and that he was building a family home in Thailand to meet those requirements. The Revenue never gave a ruling on his domicile (undoubtedly because no tax was at stake at that time).
The taxpayer created a discretionary trust in August 1999 and, as this is a chargeable transfer for IHT if made by a UK domiciled individual, the Revenue challenged his assertion that he had acquired a non ' UK domicile of choice. The Revenue's argument was based on the fact that the taxpayer had stated his intention to stay permanently in the 'Far East'. They relied on the precedent that a domicile of choice can only fix to a particular state.
Furthermore, the taxpayer left Hong Kong in 2000 for Singapore for what he viewed as a temporary assignment for a minimum of two years, eventually returning to Singapore in May 2002.
The Special Commissioner upheld the taxpayer's appeal on the grounds that (i) he had no intention to return to the UK, (ii) at the time of the transfer building work on the house in Thailand was not complete, (iii) all the evidence suggested that the taxpayer had made Hong Kong his permanent home.
The big difference between this case and in Engineer is that the taxpayer in Engineer, had left Hong Kong permanently when he made the chargeable transfer. In Surveyor, however, it was accepted that the taxpayer's residence in Singapore was a temporary assignment for economic reasons and not an intention to abandon Hong Kong.
This means that an individual could adopt a domicile of choice elsewhere, leave temporarily, and retain his domicile of choice providing sufficient links are maintained with the adopted country. This suggests that, like a domicile of origin, a domicile of choice cannot easily be shaken.
Interestingly, the steps considered by the Commissioner as evidence that the taxpayer had made Hong Kong his permanent home included the following:
l Membership of various clubs in Hong Kong
l Management of his investments was carried out in Hong Kong, where his investment adviser and stockbroker were based.
l Most of his bank accounts and credit cards, and his pension were based in Hong Kong.
l He had made a will governed by Hong Kong law.
l He did not own a property in the UK.
The fact that the client sent his children to be educated in the UK and still carried a UK passport were not sufficient on their own to cause the taxpayer to remain UK domiciled.
This case should be of interest to any adviser who advises internationally mobile clients, and once shows how the question of domicile cannot be decided without a full examination of all the facts.
This article contains general information only and is not intended to be taken as specific investment or tax advice and is based on the assumption that further information would be required and provides only a guide to some of the relevant routes that an intermediary could cover in advising the client.
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