Change of domicile
My client has a domicile of origin in New Zealand, but has long been resident in the United Kingdom. She has a certain amount of money in a Channel Islands bank, which is taxable as and when it is remitted here.
Change of domicile
My client has a domicile of origin in New Zealand, but has long been resident in the United Kingdom. She has a certain amount of money in a Channel Islands bank, which is taxable as and when it is remitted here.
She is coming to recognise that she is unlikely ever to live in New Zealand again, which would mean that she would become (or has already become) domiciled here. If she acknowledges that, what is the effect on the unremitted money in the Channel Islands? Is it all treated as remitted on the day she makes the change? Is the potential tax forgiven, or does the status of the unremitted income remain unchanged, being taxed on remittance as if she were still not domiciled here?
If it matters, what determines the precise date? Is there any advantage in setting it in one tax year rather than another, and should she take the initiative in writing to the Revenue?
(Query T16,174) - J.D.
The definition of domicile for tax purposes is where you have your 'permanent legal residence'; therefore you can only have one domicile at any given time.
I need to start with a question. Even though the client 'admits guilt' and acknowledges that she is going to treat the United Kingdom as her place of permanent residence, does she want to be treated as domiciled here? As is no doubt known, the position for non-domiciled residents here can be quite attractive for tax purposes, and I would refer her to the remittance basis article by Arthur Sellwood in Simon's Tax Briefing, 17 February 2003. In this, apart from advising that the whole subject is coming under scrutiny as announced in the 2002 Budget, it also mentioned 'Domicile may, however, play an important part in deciding the amount of tax actually payable''. It also covers 'assessable remittances' and case law and is thus well worth reading. But, as 'J.D.' is basically only concerned with the client obtaining a new domicile as 'a domicile of choice' and when this will come into force for tax purposes, I will proceed accordingly.
The Revenue states in paragraph 4.5 of booklet IR20 (Residents and non-residents), '… You need to provide strong evidence that you intend to live there permanently or indefinitely. Living in another country for a long time, although an important factor, is not enough in itself to prove you have acquired a new domicile'. So if the client's situation meets the standards, she will obtain a new domicile as 'a domicile of choice'.
Also on pages NRN 4 and 5 of the 2002 tax return, 'Notes on non-residents, etc.' the following relevant, although not exhaustive factors, are mentioned: 'Your intentions, your permanent residence, your business interests, your social and family interests, your ownership of property and the form of any will you have made.'
The intention to settle need not exist at the time residence commences; but as soon as the purpose is formed, the change of domicile is complete (Udny v Udny (1869) LR 1 Sc & Div 441, 458, HL).
As stated, it is assumed that the client wishes to become domiciled in the United Kingdom. Thus the procedure when filling in her tax return, if not already requested, would be to ask for and to fill in the 'Non-residence, etc.' pages NR1 and NR2. In Tax Bulletin 29, issued in June 1997, under 'Self assessment: residence ruling and domicile', the Revenue said: 'A tick in box 9.29 of the "Non-residence, etc." pages is also likely to prompt a review of an individual's domicile and the issue of a section 9A, Taxes Management Act 1970 enquiry. At that stage we will review the individual's domicile from the date of any change in circumstances. In line with current practice, but depending on the circumstances of any particular case, we may only change the basis of assessment from 6 April following the date of change in domicile. Where it is difficult to pinpoint a precise date of change in domicile (and again depending on the circumstances of any particular case), the change to the basis of assessment may take effect from the 6 April following the date our enquiries are concluded'.
Therefore, although this statement is not entirely conclusive, it appears that the relevant date will be 6 April 2004 at the earliest. Taking this, the easiest way to ensure that the unremitted money (interest) in the Channel Islands would not be treated as taxable income in the United Kingdom, if and when it is remitted here, would be to close the bank account(s) before the relevant date, and if required reopen them again. The interest credited after the relevant date will be assessable, whether it is remitted or not. - N.K.
There is no question of someone being struck by tax lightning on a change of domicile, which can only affect future developments, perhaps including those earlier in the year of assessment, which, technically, is indivisible (although subject to concessions).
One question still unresolved is whether capital gains held abroad, which have previously escaped taxation, become caught when remitted. The difficulty is that the newly domiciled individual has to be taxed on the arising basis so that information concerning remittances should have no further relevance.
Evidently the client completes tax returns and, presumably, answers 'yes' to the question 'are you claiming that you are not domiciled in the United Kingdom for the year?'. Such an answer in good faith is conclusive once the period for enquiry has expired. The Revenue would be free to challenge domicile status at death or earlier, if relevant to inheritance tax.
The commonsense approach is to advise the client, if at all wealthy, to reconsider carefully whether she really wishes to acquire a domicile of choice in England or Scotland. Her activities and way of life should first be reviewed (see the Commissioner's cases as reported in Taxation, 23 January 2003 at page 377 and 20 February 2003 at page 498).
Remittances from the Channel Islands may represent income and capital gains, but not former employment savings. Relocating funds to fresh banks could mitigate liabilities. - Bear.
Editorial note. Where a resident and ordinarily resident non-domiciliary becomes domiciled in the United Kingdom, the position can be summarised as follows:
(1) Schedule E, Case III earned before the change and remitted after it remains taxable.
(2) Case V income chargeable on the remittance basis falls out of charge if remitted in the following year of assessment and thereafter.
(3) Unremitted capital gains remain chargeable if remitted according to the Revenue's Capital Gains Manual (see paragraph 25311) but this view is open to question.
