A recent case exemplifies the complexity of determining domicile and that the concept is far from straightforward, writes Jennifer Emms
The word ‘domicile’ is frequently bandied around by the media. There has been an increasing spotlight on ‘non-UK domiciliaries’, which led to the 2017 changes in their historically more favourable UK tax treatment. ‘Domicile’ is a complex and in some ways archaic concept, which is rarely explained and neither are its consequences (which are not limited to tax). With the recently reported 2018 case of Proles v Kohli, now is a suitable opportunity to shed some light on the concept.
Under English common law, everyone reading this article will be domiciled somewhere. Everyone starts out at birth with what is known as a domicile of origin’. Here is the arguably old fashioned part – if your parents were married at the time of your birth, you will generally acquire your father’s domicile at that time. While under 16 and unmarried, your domicile will usually continue to track that of your father, called a ‘domicile of dependency’. Readers who have already had their morning coffee will realise that your father’s domicile could, in turn, depend on your grandfather’s and so on, which can make the analysis tricky if the men in your family are particularly nomadic.
The second key type of domicile is a ‘domicile of choice’. You can only acquire one of these through a combination of fixing your sole or chief residence in a particular place and having a settled intention to reside there permanently or indefinitely.
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An individual’s domicile can be relevant to their UK tax liability during their lifetime. Domicile is, however, most frequently litigated after death. Where individuals hold assets outside the UK, their domicile status will be a key factor in determining their liability to UK inheritance tax. Where there are large sums at stake, a deceased’s domicile may well be challenged by HMRC.
Proles v Kohli is an example of a post-death challenge in a non-tax context. This was a claim by a child for financial support from the estate of her deceased father. The claim could not be made unless her father died domiciled in England and Wales.
The father, born in Calcutta in 1956, had a domicile of origin in India. He was married at the time of his death to a wife in India (who visited the UK sporadically) and with whom he had two adult children (who lived in the UK for a significant period). His only asset in India at the time of his death was a flat where his wife lived. Since 2003 he spent a significant amount of time in the UK, had built up his business interests here (buying properties and restaurants) and had a series of London homes.
In early 2012, he had an affair in the UK with Ms Proles, who gave birth to his child in 2013. He gave financial and emotional support to the child but he was no longer with Ms Proles at the time of his death from cancer in 2015.
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The court found that, by 2010, the deceased had acquired a domicile of choice in England. This case shows that domicile is often a difficult question of fact: it is hard to ascertain the intentions of a deceased person (who had made statements supporting both domiciles and who had made inconsistent statements about his marriage).
The court looked at numerous factors, such as his relationships, his day counts in both countries, his passports, his tennis club membership and registration with a local doctor. The court concluded that his business, professional, social and emotional connections pointed to an intention to live in England indefinitely.
This domicile of choice was not lost by his decision to return to India in the last few months before his death. When he flew to India he intended to return to England. When he became increasingly ill and stayed there, the court considered that it was either forced on him by his illness or he had not made a decision to live in India ‘indefinitely’ because he, sadly, had no remaining life to live.
As demonstrated above, the concept of domicile remains relevant, but is not straightforward. In a world where individuals are living increasingly international lives, it is worth giving a thought to your domicile status, including whether to prepare a statement of your domicile. Although they can be regarded as ‘self-serving’ they can help to set out relevant factors and demonstrate intention in case your domicile status is ever questioned.
Jennifer Emms is a senior associate at boutique private wealth law firm Maurice Turnor Gardner LLP
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