If you’re living or working overseas, or have links to another country, you might feel that UK tax won’t have much of an impact on your finances. But your domicile status can follow you overseas and for many years. Failing to grasp its reach can be problematic when it comes to protecting your wealth from tax. Peter Webb, our Head of Tax Advisory, looks at a recent case where domicile became a significant issue.
Domicile is a tricky area when it comes to UK tax. But why does it matter? The simple answer is that it governs whether or not you’ll face UK Inheritance Tax (IHT). And given that IHT is charged at 40%, it can have a significant impact on your Estate. The simple rule is that if you’re UK domiciled, any assets you have around the world will face IHT. If you’re not, any assets outside of the UK don’t count. If you’re UK tax resident but aren’t UK domiciled, you can exclude any income and gains outside the UK from UK tax. In short, being non-UK domiciled has significant tax benefits.
A recent case has highlighted again the need to check, and confirm, your domicile status, especially if you or your parents have overseas connections.
The case of Jeremy Coller
Jeremy Coller’s family had overseas links – his father was born in Austria but moved to the UK in 1938 to avoid Nazi persecution, serving in the British army in WW2 before establishing a business in London. Jeremy’s mother had a domicile of origin in Ireland before moving to London, meeting his father and marrying. The Coller family lived in the UK, where Jeremy’s father subsequently died.
From 2013 to 2016 Jeremy Coller completed his Tax Returns on the basis that he was not UK domiciled due to both parents having domicile status outside of the UK. After the UK tax authorities, HM Revenue, investigated it was concluded that Jeremy Coller did, in fact, have UK domicile status.
Appealing a domicile status
At appeal, the argument was made by the legal team that Jeremy Coller’s father was domiciled in France, based on his wife’s witness statement. They claimed although he’d abandoned his Austrian domicile of origin, he’d been forced to live in the UK through necessity and had the intention of living in France throughout his later years – despite not having a permanent home there. However, given his behaviour, the ruling found that there was a ‘deeply settled’ connection with the UK, that Jeremy’s father acquired a UK domicile of choice before his child was born and, therefore, his son had a UK domicile of origin.
As part of his defence, Jeremy Coller also claimed that he’d never seriously considered where he might end his days, focusing on his business interests and family, and was undecided about whether to remain in the UK permanently or indefinitely. He stated that he had links to Israel, making substantial donations to a university there along with his most significant property investments. Yet he was born and educated in London, had significant business interests in the UK and had not lived anywhere else. These facts were seen to be inconsistent with the argument that he had an intention to settle in another country.
The judge decided that Jeremy Coller had a UK domicile of origin and that domicile of origin had not been displaced by the acquisition of a domicile of choice elsewhere.
What does the Coller case mean?
This case raises interesting questions for the children of those who flee to the UK, and again shows how individual circumstances are considered when it comes to domicile. It also highlighted the uncertainty when a person claims that they don’t have a positive intention to live in the UK indefinitely but can’t point to a “clearly foreseen and reasonably anticipated contingency” that would make them leave the UK in future. Finally, when considering the evidence of deceased taxpayers, it’s clear that their actual conduct carries more weight than written or oral statements when establishing domicile status.
Head of Tax Advisory