It's Unnatural!

MICHAEL RIDSDALE examines the relationship between domicile and naturalisation.

THERE HAS BEEN a great deal of interest recently in the favourable tax treatment afforded to individuals who are not domiciled in any of the countries making up the United Kingdom. We may of course hear more on the topic on Budget day.

Some of the debate has centred around what an individual is required to prove in order to establish that he has a non-United Kingdom domicile. It has been suggested that individuals not born within the United Kingdom may just need to retain a burial plot or to maintain bank accounts in the country of their birth in order to assert successfully that they have a non-United Kingdom domicile, notwithstanding that they are resident and perhaps even ordinarily resident in the United Kingdom for tax purposes.

This article takes a look at the nature of domicile and the extent to which an individual can intentionally change it. It also considers the impact of a non-British national acquiring British citizenship on his domicile. It is not intended to be a comprehensive summary of the law; and for this, readers are advised to consult works such as Dicey and Morris on the Conflict of Laws (13th edition).

Domicile

Domicile is a common law concept that connects every individual to a system of law. It is territorial by nature and makes a distinction between England and Scotland. It is conceptually impossible for an individual to be domiciled in the United Kingdom; he can only be domiciled within the United Kingdom. It follows that an individual cannot have a 'United Kingdom domicile' per se.

Domicile of origin

An individual can never be without a domicile. At birth, an individual will usually acquire the domicile of his father. So if at birth the father is residing in the country of his birth, his domicile is most likely to be that country. This is known as a domicile of origin and will be retained by the individual until it is replaced. The most common way in which an individual's domicile of origin will change is if he acquires a domicile of choice.

Domicile of dependence

A domicile of dependence is similar to a domicile of origin in that an individual will in certain circumstances assume the domicile of the person on whom he is legally dependent. If the dependency ends, the individual will usually continue to be domiciled in that country but it may change. Domicile of dependence is not considered any further in this article.

Domicile of choice

A domicile of origin possesses adhesive qualities and is very difficult to lose. For an individual to acquire a domicile in a country different from that of his domicile of origin he must show that:

• he is actually resident in that other country; and
• he has formed a settled intention to remain in that country permanently.

There is no other way. If he does acquire a different domicile in this way, it is known as a domicile of choice.

Physical residence is a question of fact and is relatively straightforward to establish, although it will usually (but not always) need to be longer than one day (see White v Tennant (1888) 31 W Va 790).

The requisite intention on the other hand is somewhat more problematic. It is a qualitative test and requires that all an individual has said and done in that connection during the whole of his life is to be taken into account (see Ramsay v Liverpool Royal Infirmary [1930] AC 588 and Re Bheekun deceased [1999] 2 FLR 229). This includes things done and said by that individual after, as well as before the time when it is asserted that domicile of choice has been acquired. Nothing can be ignored when performing this analysis of an individual's life. For example, the fact that an individual still has a burial plot or the fact that he has acquired British citizenship has to be taken into account. However, it is important to bear in mind that no single factor is likely to be conclusive.

It is a matter for the common law whether or not an individual has acquired a domicile of choice; it is ultimately a question that the English courts need to rule upon. By way of illustration, the Inland Revenue can issue a notice of determination which may be inconsistent with the true position at law. The Revenue could, however, issue a notice of determination that is in line with the correct position at law but this would be by coincidence.

Factors that have been taken into account by the courts when ascertaining whether or not a domicile of choice has or has not been acquired include:

• whether or not the individual has acquired a British passport (see Mrs F & S2 (personal representatives of F deceased [2000] SpC 219);
• where circumstances beyond the control of the individual have made him stay in England (see Anderson (Anderson's Executor) [1998] SpC 147);
• whether or not the individual has made an English will (see Anderson);
• the fact that an individual maintained that he would return to the country of his birth should his wife predecease him (see Commissioners of Inland Revenue v Bullock [1976] STC 409;
• the fact that the individual had children and grandchildren in England (see Steiner v Commissioners of Inland Revenue [1973] STC 547).

This is not an exhaustive list and each case needs to be looked at individually on its own particular set of facts. There is no 'checklist' as such.

The burden of proving that an individual's domicile has changed is on the person asserting that change (see Winans v Attorney-General [1904] AC 287).

Naturalisation

Naturalisation is the process by which a non-United Kingdom national with no ancestral connection acquires citizenship here and is often thought to be an indicator that a naturalised individual has acquired a domicile of choice within the United Kingdom. In order to acquire citizenship in the United Kingdom, an application has to be made to the Home Office under the British Nationality Act 1981. Certain conditions have to be satisfied unless the individual is in the service of the Crown. If the Home Office is happy that the necessary conditions have been satisfied, the individual concerned will acquire British citizenship after taking the oath of allegiance to the Crown.

The requirements

As well as being of full age, the applicant must be of good character, have sufficient knowledge of the language (English, Welsh or Scottish Gaelic) and have an intention to make his permanent home in the United Kingdom.

Good character means no criminal record or a history of bankruptcy. Honesty and integrity are paramount. On the language front, a decent level of comprehension is expected.

The Home Office must also be satisfied that the applicant has been resident in the United Kingdom for a prescribed length of time. Broadly speaking, the applicant must not have been absent for a collective period of 450 days over a five-year period. In addition, the applicant must not have been absent from the United Kingdom for a collective period of 90 days during the last year of that five-year period. Furthermore, the applicant must not have been in breach of any of the immigration laws of the United Kingdom.

Naturalisation and domicile

Naturalisation is not a substitute for domicile. The English courts have stated that domicile can change whether or not British citizenship has been acquired by an individual (Wahl v Attorney-General [1932] 147 LT 382). As a concept, naturalisation merely looks at residence, language, character and the home. It is, however, something that an individual may have done during his or her lifetime and must therefore be taken into account when trying to ascertain an individual's domicile.

Three differences between domicile and naturalisation are immediately apparent:

• naturalisation is a process that is triggered by an individual;
• residency for the purposes of naturalisation is inconsistent with domicile as, for example, it is impossible for an individual to be domiciled in Scotland and England simultaneously; and
• whether or not a change in domicile has taken place is a question for the courts, so an individual's domicile can change without him being aware of that change.

Residence

Residence for the purposes of naturalisation is not synonymous with residence for the purposes of domicile. While it is possible for an individual to declare an intention to be resident in the United Kingdom for the purposes of naturalisation and for his physical residence to be sufficient for the purposes of the law of domicile, the physical residence which is ascertained for the purposes of domicile is distinct from the stated intention on an individual's application for British citizenship.

This is largely because an individual can satisfy the residency requirements of naturalisation while moving between the countries making up the United Kingdom. Such movement would indicate that the individual has not formed a settled intention to remain in any one country permanently and will probably not have acquired a domicile of choice within the United Kingdom.

Intention

The intention of an applicant for naturalisation to establish his principal home in the United Kingdom does not necessarily require that the individual intends to remain there permanently. The intention required for naturalisation is therefore insufficient for the purposes of domicile. As with residence, the individual may possess the necessary intention required for a domicile of choice to be acquired but this will not alter the fact that naturalisation does not require the same level of intention.

An individual does not have to acquire British citizenship in order to acquire a domicile of choice within the United Kingdom. Nor will the acquisition of British citizenship necessarily result in a change of domicile. Indeed, the House of Lords has stated that the common law will ascertain domicile and that if the individual concerned has acquired British citizenship, the process of naturalisation involved cannot be stretched into something that it is not (see Wahl).

Language

Domicile does not formally require that an individual must learn to speak the local language in order for him to acquire a domicile of choice. It will be relevant for the purposes of domicile if an individual has learned the language and will be taken into account, as the integration into society is evidence towards the formation of a settled intention to remain in a country.

Naturalisation indicative of domicile?

Domicile requires that all factors be taken into account when ascertaining whether or not the requisite settled intention has been formed by an individual. The requisite intention for the purposes of naturalisation is narrow and the list of factors to be taken into account form a pretty much exhaustive list. Domicile on the other hand looks at each case on its own facts and the current list of around twenty factors that have been taken into account by the courts is not exhaustive.

Although domicile requires us to take into account factors based on the subjective intention of the individual in question, it is essentially an objective concept. Furthermore, the United Kingdom courts have in the past stated that it is unlikely that an individual can come to the United Kingdom with the intention of acquiring a domicile of choice within it, simply because the individual concerned will not understand what domicile is in the context of English law. Accordingly, factors such as setting up a home within the United Kingdom, seeking employment here, opening bank accounts, etc., cannot be undertaken with a view to acquiring a domicile here.

This also means that individuals leaving their home countries in order to travel to the United Kingdom cannot retain burial plots and bank accounts in their home country with a view to not acquiring a domicile of choice within the United Kingdom. Such factors will be relevant, and the law requires them all to be taken into account. In relation to burial plots, it was held in Commissioners of Inland Revenue v Cohen 21 TC 301 that retaining a burial plot abroad did not prevent the individual from acquiring a domicile of choice in England.

Naturalisation is a positive step taken by an individual which for the reasons mentioned above cannot be undertaken with a view to acquiring a domicile of choice within the United Kingdom. It is a step having prospective effect and is a question of fact, as opposed to domicile which looks back over an individual's entire life and is a question of law.

Michael Ridsdale is a solicitor practising corporate tax in the London office of Hammond Suddards Edge. He can be contacted on michael.ridsdale@hammondse.com.

Issue: 3852 / Categories: