Writing for Taxation magazine, BKL tax adviser Terry Jordan considers the domicile status of a taxpayer whose Indian parents emigrated to the UK in the 1940s without intending to return.
Unlike the question of residence, which is largely factual, determining domicile commonly requires an investigation of the historical circumstances and future intentions. The domicile status of a taxpayer, whose Indian parents emigrated to the UK in the 1940s without intending to return, is examined.
Our client is a very successful entrepreneur with high net worth. In the course of conversation with him, he intimated that he thought he was domiciled in India. His father was Indian, but left in about 1945 with no wish to return because of the partition troubles.
Our client was born in England in the mid-1970s, as was his wife. He went to school in the UK and built up the family business here and has only been to India for business and for holidays.
Our client has made no will under UK or any other jurisdiction and has no real intention of going to live in India. He has no non-UK assets and has paid UK income tax and National Insurance personally and his businesses have paid UK corporation tax and UK VAT.
Our query is whether he can really claim that he is non-UK domiciled? This is especially relevant for inheritance tax because he is resistant to tax planning in that regard. If he is non-UK domiciled, is he Indian domiciled?
Query 18,205– Winnie The Pooh
Reply from Terry ‘Lacuna’ Jordan, BKL
As Winnie The Pooh intimates, the charge to inheritance tax is based upon a person’s domicile. Individuals domiciled within the UK are potentially liable to inheritance tax on their worldwide assets and, conversely, persons domiciled outside the UK are liable only on UK-situs assets.
At birth, a person acquires a “domicile of origin” which is that of the father if the parents are married when the child is born and otherwise that of the mother.
The domicile of origin is the most tenacious and it has been suggested that the criminal standard of beyond reasonable doubt rather than the civil standard of the balance of probabilities is required if it is asserted that a person has lost their domicile of origin by the acquisition of a domicile of choice in another territory.
The key question here is the domicile of the client’s father when the client was born in the mid-1970s. We are told that the father had no wish to return to India because of the partition troubles and it is likely that he had acquired a domicile of choice within the UK by the 1970s.
There is a presumption against a change of domicile, as above, but “what is dictated by necessity in the first instance may afterwards become a matter of choice” (Winans v AG (1901) 85 LT 508 at 510).
Regardless of his domicile at general law, the client has lived within the UK all of his life. It is generally well known that IHTA 1984, s 267 deems a person to be domiciled within the UK for inheritance tax purposes if he has been tax resident for 17 out of the previous 20 years of assessment.
Accordingly, even if domiciled outside the UK at general law, the client is, on the face of it, deemed domiciled here for inheritance tax purposes. Perhaps less well known is the effect of the double taxation treaty with India, which remains in force notwithstanding the abolition by India of its equivalent of inheritance tax some years ago.
In simple terms, the effect of the treaty is to disapply the deemed domicile provisions where a person is domiciled in India under both Indian law and the law of, in this case, England and Wales.
In such a case, non-UK assets would be outside the scope of inheritance tax, provided they did not pass under a UK disposition. However, in this case, the client would not appear to be domiciled in India under either legal regime.
