A recent ruling in the First-tier Tax Tribunal has provided a useful reminder of the factors the courts will take into consideration when determining an individual’s domicile status. The case involved an appeal against HMRC’s decision that the taxpayer, Mr Shah, was domiciled in England and Wales at the time of his death. The appeal was brought by Mr Shah’s son and executor.

Facts of the case

Mr Shah was born in Karachi in 1929 where he spent his adolescent years. It was not disputed between the parties that Mr Shah’s domicile of origin was not the UK. After studying in the UK from 1954 to 1957, Mr Shah worked and lived between Tanzania and India. When Tanzania became independent from the UK in 1961, Mr Shah was offered and acquired British citizenship before returning to the UK in 1973 with his wife and children. Mr Shah worked as a pharmacist for several years before retiring in 1997.

Between 1973 and the time of his death in 2016, Mr Shah undertook some overseas travel. This included one two-week stay and one three-week stay in India, plus visits to the USA to see family. He only ever had a home in the UK during this period.

In 2014 Mr Shah made two wills. A UK one for his UK assets and an Indian one for his non-UK assets. Mr Shah owned no Indian property and had no Indian bank account. He registered as an overseas citizen in India in 2014.

Following Mr Shah’s death in 2016, HMRC issued a notice of determination stating that he was domiciled in England and Wales at the time of his death. His executor appealed claiming that Mr Shah’s place of domicile was India as he had an intention of moving to Bangalore and that his initial move to the UK was prompted by the need to find a job. It was suggested that Mr Shah had originally intended to leave the UK following his retirement, although this was subsequently delayed for various reasons including the deaths of his daughter and wife and his subsequent poor health.

Various factors were examined by the Tribunal, including the frequency of Mr Shah’s trips to India; his family connections in both India and the UK; his Indian social and religious connections in the UK; his citizenship status; and the steps he had taken to return to India.

Outcome of the case

In considering the evidence across Mr Shah's life, the Tribunal found that Mr Shah had not shown an intention to return to India and thus was domiciled in England and Wales at the time of his death by virtue of having formed a domicile of choice in the UK after 1973. The Tribunal noted that, despite several trigger events to leave the UK including the sale of his business, family deaths and the sale of his home, Mr Shah had taken no real steps to return to India and determined that any intentions he did have were “at best vague".

The case demonstrates that the courts will look at a number of factors across an individual’s life when making a domicile assessment, and so those seeking to maintain their non-UK domicile status should consider their position carefully and have suitable evidence to support their position. The case serves as a warning to those taxpayers attempting to maintain a non-UK domicile based on vague intentions, despite living in the UK for extended periods of time. The case should be considered carefully by long-term UK residents who may hope to take advantage of a UK estate tax treaty to potentially limit their exposure to UK inheritance tax by virtue of their non-UK domicile status.

Why was ‘deemed domicile’ not considered?

It is important to remember that HMRC treat individuals who are not UK domiciled as if they are domiciled in the UK for income tax and capital gains tax purposes if they have been resident for tax purposes in the UK for at least 15 of the previous 20 tax years.

Although Mr Shah had been living in the UK for over 40 years by the time of his death, the question of deemed domicile  was not considered by the Tribunal. This is presumably because the deemed domicile rules would be disapplied under the terms of both the India and Pakistan double tax treaties. The Tribunal therefore had to determine whether Mr Shah at the time of his death had a domicile of choice in the UK.

If you would like more information about domiciled status, please contact any member of our Wealth Management and Taxation team on 01494 521301.