By Myra Leung
Background
Domicile and citizenship are two distinct concepts. Domicile is not defined in statute – its meaning is derived from case law. An individual can only have one domicile at any given time whereas it is possible to have multiple citizenships. Under English law, it is impossible to not have a domicile whereas it is possible to be “stateless” in the context of citizenship. Domicile determines which jurisdiction will govern an individual’s personal affairs, ranging from birth (i.e. legitimacy) to death (i.e. succession) and anything in between (e.g. marriage and taxation).
There are three forms of domicile under English law:
- Domicile of origin
- Domicile of dependence
- Domicile of choice
There are different routes to becoming a British citizen. The most common way for an individual (who was born outside the UK to non-British parents) to become a British citizen is by naturalisation.
Why is it important?
If an individual is not domiciled in one of the legal jurisdictions in the UK (England and Wales, Scotland or Northern Ireland), then he or she will only be liable for UK Inheritance Tax on his or her UK situs assets (instead of worldwide assets). Moreover, a non-UK domiciled individual will potentially have access to the remittance basis of taxation (instead of the arising basis), which means that his or her foreign income and gains are not subject to UK tax unless they are “remitted” to the UK. Domicile is also important for a range of non-tax reasons including which law applies to succession and enforcement of judgements.
HMRC
HMRC’s internal manual (RDRM23080) sets out a “schedule of useful information and documents” which they might request during a domicile enquiry. The schedule includes:
- Nationality (citizenship) at birth, including an explanation of its basis where this is not obvious from the context.
- Details of any changes in or additions to the nationality (citizenship) at birth, with explanations of the relevant background.
The second bullet point above applies to non-UK domiciled individuals who wish to naturalise as a British citizen.
Home Office
Home Office guidance documents offer some useful points:
Nationality policy: domicile
“A person can change nationality without it affecting their domicile, or could acquire a change of domicile whilst retaining their original nationality. The fact that a person has acquired a new nationality can be a relevant factor in showing a change of domicile, but is not conclusive, depending upon the reasons for the change. If a person gives up their former nationality it may suggest a change of domicile.”
It is important to note that some countries do not recognise dual citizenship. Therefore, an individual might have to renounce their original citizenship to become a naturalised British citizen.
Nationality policy: Naturalisation as a British citizen by discretion
“Information may also come to our attention that HMRC regard an applicant as domiciled abroad for tax purposes. In such cases, you must request the applicant's permission to contact the HMRC. You should then ask the HMRC to provide us with a copy of the applicant's completed ‘Domicile Enquiry’ questionnaire, which may throw some light on future intentions. If the applicant refuses permission you must refuse the application.”
The Home Office accepts that some individuals do not have a “principal home” due to their lifestyle (e.g. international celebrities). In such cases, the Home Office caseworker must consider the applicant’s tax and domicile positions.
Points to note
If the applicant wants to naturalise to become a British citizen under section 6(1) of the British Nationality Act 1981, then he or she must have the intention that his or her “principal home” will be in the UK. On the naturalisation application form, the applicant is required to confirm whether he or she plans for his or her “main home” to be in the UK. “Principal home” and “main home” are different, but clearly related, to the “permanent home” requirement of establishing an individual’s domicile.
An individual’s domicile status may affect his or her naturalisation application for British citizenship but it is not necessarily a decisive factor. Equally, HMRC will take into account an individual's citizenship(s) as part of the domicile enquiry but having British citizenship does not make someone UK domiciled automatically. It will be down to the specific facts and circumstances of the individual if he or she finds himself or herself in these scenarios.
How Burges Salmon can help?
We have a particular specialism in advising high net worth individuals on complex issues and interactions between UK immigration and tax law including pre-immigration tax planning, tax residence, settlement, naturalisation and domicile.
See our Personal Immigration and Private Wealth areas for further details.
For further information, please contact John Barnett or Suzanna Harvey.