HMRC domicile enquiries: An increasing concern for taxpayers

The UK non-domicile tax regime is a big political talking point of the upcoming 2024 election, but HMRC has already increased its activity in pursuing domicile enquiries. Those who rely on their domicile status for tax purposes should be ready to prove it if challenged.

What is domicile?

Under common law, everybody is domiciled somewhere, and you can only be domiciled in one place at a time. Your country of domicile can change over time, but domicile is ‘sticky’ – for example, an individual born in the UK to UK domiciled parents who works in the US for 30 years and becomes a citizen there will retain their original UK domicile throughout if it has always been their plan to return permanently to the UK eventually. 

HMRC focus

HMRC is raising an increasing number of enquiries into the domicile status of individuals, which involve it asking large numbers of standardised questions. These enquiries can be burdensome and time consuming to manage, and in some cases may take years to resolve. 

Often, a large volume of information and documentation is requested, and HMRC will look both at what an individual has done in the past and at the circumstances that may lead them to either leave or return to the UK in the future. It is therefore essential that evidence is gathered regularly so it can be used to provide contemporaneous support regarding the person’s intentions. 

Recent tax tribunal cases considering domicile have highlighted some interesting points.

Henkes v HMRC [2020] and Coller v HMRC [2023]

These cases show the courts applying a ‘multi-factorial’ approach to arrive at their decision, reviewing evidence and considering a wide range of factors. The findings highlighted that a lack of connections with an individual’s country of origin can be a key factor as to whether they have acquired a new domicile somewhere else by choice. Having a multitude of connections to the UK without evidence of connections to another jurisdiction can also be damaging to an individual’s claim to be treated as non-UK domiciled. One key take-away from the Coller case is that that the tribunal placed more weight on the actions taken by the claimant than on evidence provided in documentation, a reminder that taxpayers’ actions are ultimately more important than their words. 

Shah v HMRC [2023]

Mr Shah’s executors wished to benefit from a UK estate taxes treaty with India, to determine which country had the right to tax his estate on death. 

The tribunal concluded that Mr Shah, who was born in what is now Pakistan to Indian domiciled parents, had settled and intended to remain in England, and had no significant connections to India, having only spent three weeks there in the previous 43 years. It looked at factors such as the fact Mr Shah did not hold a bank account in India, nor any investments or assets in that country. It determined that Mr Shah had close family relations in the UK and at potential ‘trigger points’ where he might have considered moving to India (following his wife’s death, the sale of his UK property and on retirement), he did not do so. Despite claims that Mr Shah’s ‘permanent home’ was India, the tribunal found on the facts that he had settled permanently in the UK, and his domicile had changed accordingly. 

Who is affected?

HMRC’s increased focus on enquiring into domicile status could affect anyone who has ever claimed non-UK domiciled status, but is especially relevant to individuals who are:

• remittance basis users; 
• long term residents approaching 15 years of UK residence; 
• seeking to rely on UK estate taxes treaties with France, Italy, India or Pakistan, or 
• the settlor of non-UK trusts. 

Key take aways

It is important to review your position regularly and manage your situation, rather than wait for HMRC to enquire into your status. 

Settlors and trustees need to be alert to warning signs of a potential change in domicile, so that appropriate actions can be taken.

Should HMRC successfully argue that you have become UK domiciled, this can have many consequences, not least a costly tax bill. 

For more information, please get in touch with Andrew Robins, Laura Greenhill or your usual RSM contact.