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What Is Domicile And Why Does It Matter For Tax? – Capital Gains Tax


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The concept of “domicile” has been heavily discussed
in the media in recent weeks. But what is domicile and why is it

In short (and losing a lot of the nuance) an individual’s
domicile is the place of their permanent home. A home is more than
just a place of residence. An individual’s residence is where
they are currently living and this may change from year to year.
Even an individual’s main residence where they spend the
majority of their time is not the same as their domicile.

A person acquires a domicile at birth from their father, or if
their parents are unmarried then from their mother. This is known
as their “domicile of origin”. So Mr Smith born to
English-domiciled parents has an English domicile of origin,
irrespective of where he is born in the world.

An individual’s domicile can change over time and if it
does, the individual is said to have acquired a “domicile of
choice”. Two elements are required in order to establish

a) The individual must actually physically live where they
intend to become domiciled, and

b) The individual must intend to reside permanently and
indefinitely in that jurisdiction, with no end in sight.

For example if Mr Smith aged 30 moved from the UK to France to
work for 10 or even 30 years he would not lose his English domicile
as long as he does not intend to reside permanently in France. If
he later decided he would like to stay in France permanently, he
would lose his English domicile of origin and acquire a French
domicile of choice at that stage. Alternatively, if Mr Smith
intended to remain in France permanently and indefinitely from when
he arrived he would obtain a French domicile of choice from the
point of arrival, whether he moved aged 30 or much later in life,
say to retire at 65.


Individuals who are domiciled outside of the UK
(“non-doms”) have access to a number of favourable tax
regimes. Among the most useful is the remittance basis of taxation,
which allows a non-Dom to shelter non-UK income and capital gains
from UK tax as long they are kept offshore: Tax is paid only on
foreign income and capital gains brought to (or otherwise enjoyed
in) the UK. In contrast an individual with a domicile in the UK is
taxed on their worldwide income and gains.

Non-doms also benefit from significant inheritance tax
exemptions on non-UK property, both on death (saving 40%) and on
otherwise chargeable lifetime transfers such as setting up trusts
(a 20% saving).


The essence of the test of a person’s domicile is easy to
state, but in reality more nuanced and very difficult to prove.
Unsurprisingly given the tax advantages, HMRC are vigorous in
enquiring into non-doms, especially individuals born in the UK but
claiming non-dom status as a consequence of their parent’s
domicile, and such enquires can be intrusive, all-encompassing and
lengthy to conclude. The final arbiter will, if necessary, always
be the courts, but taking specialist legal advice early in the
process can help to smooth and speed up the enquiry process or
avoid potentially costly mistakes where planning is undertaken that
is dependent upon domicile.


The tax treatment of non-doms is a substantial political and
financial question. Non-doms bring in about £8bn a year of
taxes; to put that into perspective the new NICs increase will
raise about £6m a year.

Labour have announced that they intend to abolish the
non-domicile tax regime. No details on how this will be
accomplished, or what will replace it, have been announced although
the party are considering a move to a shorter-term scheme for
temporary residents. This could, for example, see tax benefits only
available to  individuals resident in the UK for no more than
five years, in line with a number of other G7 countries. In 2000
Gordon Brown, then Chancellor of the governing Labour party,
announced a similar review that was eventually scrapped.

The Conservatives have announced no plans to change the law
around domicile or its tax benefits.

Originally Published 13 May 2022

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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