Changing Your Domicile UK British Expats Hong Kong
The question arises’ then; why not just change your domicile to another country where there is no IHT or other “Death Taxes”?
Changing your UK domicile
Prior to 2010 UK domiciles could submit form IHT400 and IHT401 to FACET (HMRC) (Appendix D and C). FACET would then send all the papers submitted to the Pre-Grant section of FACET for consideration of the claim. Pre-Grant would then decide if non-UK domicile can be accepted, rejected, or referred to Technical Group.
Importantly their decision to accept a change of domicile was based on the following criteria.
“This decision is based upon a combination of debt management and domicile factors. Debt management factors include: value of the World-wide estate, location of the personal representatives, and availability of land charges. Domicile factors can include whether the deceased was born, lived and died abroad, or where they were born abroad and resided in the UK for a fixed period (which ended before the death and lasted no more than 10 years)” – HMRC
HMRC state in HMRC6 (‘Residence, Domicile and the Remittance Basis’) “… if you say that you have a non UK domicile status, then………………. we might want to enquire whether or not that is correct. By its very nature, this sort of enquiry whether or not correct, will be an in-depth examination of your background, lifestyle and intentions over the course of your lifetime. Any enquiry of this sort will extend to areas of your life, and that of your family, that you might not ordinarily think are relevant to your tax affairs”
In any event if a person was UK domiciled “At any time during their life time”; on their premature death (even if post 2010 an agreement to change their domicile was granted) their UK “Domicile Status” will be ”Tested”.
Post 2010 – there is now greater uncertainty for UK domiciles who wish to agree their domicile position with HMRC following changes in HMRC policy in March 2009 and August 2010.
With effect from 26 March 2009, HMRC ceased to consider an individual’s domicile position for income tax and capital gains tax following submission of a DOM1 form. For income tax and capital gains tax, individuals now have to self-assess their position which HMRC may enquire into subsequently. In August 2010, a new policy was also announced on the circumstances in which HMRC would consider an individual’s domicile position for inheritance tax purposes. The new policy causes greater uncertainty for taxpayers and UK domiciles.
On 24 August 2010 HMRC issued a new brief (HMRC Brief 34/10 in relation to domicile and IHT. In short, HMRC advised that they are unlikely to consider the validity of a claim to being non-UK domiciled unless there is a significant risk of loss of UK tax; HMRC will continue its existing practice and only open an enquiry into that return if the amounts of Inheritance Tax at stake make such an enquiry cost effective to carry out. In deciding the risk, HMRC will take account of the information they have about the individual, the amount of tax at stake and the cost of carrying out the enquiry. HMRC also warned that, where they do investigate a claim of non-UK domicile, the questions raised can be invasive due to the type of evidence required to substantiate the claim.
“Under current UK Tax legislation a UK domicile cannot change their domicile
during their life time; and long term residents of the UK and those who have emigrated may be treated as being domiciled in the UK for the purposes of IHT even though they have a domicile outside the UK under “General Law1”!”
1Genreral Law even if a person is domiciled outside the UK under “General Law”, two special rules apply to those who have emigrated from the UK or to those who have been resident here for many years IHTA84/S267. If either rule applies then, in most cases, we treat them as domiciled within the UK for the purposes of IHT, i.e. domicile includes deemed domicile (i.e. Father born in the UK).
Rule 1 The “three year” rule – IHTA84/S267 (1)(a): For the rule to apply they must have been domiciled in the UK both on or after 10 December 1974 and within three calendar years before the relevant event, e.g. gift, death.
Rule 2 The “17 out of 20” rule – IHTA84/S267 (1)(b): For the rule to apply they must have been resident (for Income Tax purposes) in the UK on or after 10 December 1974 and in not less than 17 out of the 20 years of assessment, i.e. 6 April – 5 April, ending with the year of assessment in which the relevant event falls.
In other words “General Law” sates when a person is liable to IHT and not “IF THEY MAY BE LIABLE”
Furthermore, HMRC’s Residence, Domicile and Remittance Basis (RDRB) (Appendix G) Manual includes a section on enquiries into domicile status. “The burden of proving a change of domicile rests with the party who asserts the change”.
Please remember – Unlike UK Criminal Law where “You are innocent until proven guilty”; the legislation for UK Tax Law states that “You are guilty until proven innocent”.
The Salient point
“If HMRC state that your estate owes them say 1,000,000 GBP IHT then it will be up to your estate (your family) to take HMRC to court (expensive), to try and prove to a Judge that HMRC are incorrect (difficult given HMRC resource and position); in the mean time all of your assets will be seized by HMRC until either the IHT is paid or the Judge agrees with your family!”
So in ALL cases: “Domicile Status” will be “Tested” on a person’s premature death under all circumstances with no exceptions (remember we are talking about HMRC and the collection of UK tax).