A client of mine, Jennifer – not her real name, is married to an African gentleman and has lived abroad for 28 years. Last month her father who lives in England where Jennifer was born and brought up, died of Covid – 19. It was very sudden and unexpected. Jennifer came to London for the funeral and to sort out his estate with my assistance; her father was a widower.
Jennifer and her husband are entrepreneurs and have built a substantial fortune across the globe, as well as many personal lifestyle assets such as a home in New York and an apartment in Singapore where they have business connections
During a zoom call Jennifer asked whether she should make a Will now that she had inherited her father’s home in Wimbledon and most of his assets. Jennifer was his only child. Of course, she should make a UK Will but there were much more serious consequences to consider
Jennifer had been born and bought up in the UK, the UK tax authority on her death would probably question any attempt by her executors to claim that she was not taxable in the UK on her world-wide estate on her death. Jennifer was aghast ‘Don’t be silly’ she said ‘I have been out of the country for 28 years, there is no way I am going to pay tax to the UK government on my non-UK investments …’
I gently pointed out to Jennifer that she would not be there to fight her case against the UK tax authority; HMRC, and it had a lot of case law to use against her Executors when the time came as ammunition to argue it’s case that her entire estate should suffer UK tax at 40% or whatever rate was current at the time.
Being subject to UK ‘Inheritance Tax’ on your world-wide estate depends on an ancient concept called ‘domicile’ which is a very different to the concept of ‘residence’.
Residence depends on how long you stay in any one country; domicile is more to do with which country you treat as ‘home’ regardless of where you actually reside – or live.
There are several types of ‘domicile’ but the most important two types for Jennifer are ‘domicile of origin’ and ‘domicile of choice’.
A domicile of origin is acquired when an individual is born (Henderson v Henderson 1967). Where the individual is legitimate the domicile of origin is generally the father’s domicile at the date of birth.
Clearly at the time Jennifer was born, she was born legitimate and her father’s domicile was the UK where he had lived all his life.
A domicile or origin will continue until the individual acquires a domicile of choice.
A domicile of origin is considered by the UK courts to be very ‘sticky’ and will pop up again as soon as a domicile of choice is abandoned (Winans v IRC 1904).
The significance for Jennifer is that if her executors, when obtaining probate of her UK assets on her death, cannot prove to HMRC that she has acquired a domicile of choice in another country it will seek to tax her world-wide estate to 40% or whatever is the rate then
The intention to acquire a domicile of choice and to abandon the domicile of origin has to be ‘clearly and unequivocally proved’ (Moorhouse v Lord 1863)
The two requirements to establish a domicile of choice are that the person must live in the territory and must have formed the intention to reside in that territory permanently or indefinitely.
The length of time spent in another country is not determinative. In the case of Udney v Udney (1869) a period of non-residence of 32 years was not enough proof to show a permanent and settled intention not to return to the country of domicile.
If a person intends to return to his country of origin on a contingency the requisite intention to remain permanently or indefinitely in the territory, that person lacks the requisite intention.
If, by keeping her father’s home in Wimbledon, she is ‘keeping her options open’ to return to the UK on the death of her husband – it is unlikely that she has formed the intention to reside in Africa permanently or indefinitely which could mean that her world-wide estate will be subject to UK tax.
The story of Jennifer is very sobering for anyone who was born and brought up in the UK, but retains investments in the UK and my strong recommendation is to seek advice before HMRC starts digging on your death.
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