Henderson & Others v HMRC: Actions speak louder than words for domicile
In the case of Henderson & Others v HMRC, the First-Tier Tribunal (“FTT”) has ruled that a group of siblings were UK domiciled from birth despite their father’s claim that he and the siblings’ grandfather were domiciled in Brazil.
The case provides a useful example of the factors that courts and tribunals will consider when reviewing a person’s domicile. In this case, the FTT placed less weight on the father’s statements and instead looked to his and the grandfather’s actual actions to determine their domicile.
‘Domicile’ is a creation of common law; i.e. there is no statute that sets out the criteria for determining a taxpayer’s domicile (unlike tax residency which follows the Statutory Residence Test and relevant Double Tax Treaties).
A person will normally be domiciled in the country in which they have a settled intention to permanently reside.
Unlike UK domiciled residents, non-dom residents can elect to only pay UK tax on their foreign income and gains which are remitted or enjoyed in the UK (subject to certain charges and restrictions). Therefore non-dom status can be valuable to those with income or gains outside the UK.
There are three types of domicile:
- Domicile of origin
Normally inherited at birth from the father’s domicile.
- Domicile of choice
Created by severing all ties with a country of domicile and moving to a new country with the intention of settling there permanently.
- Domicile of dependence
Normally follows the domicile of the father whilst the individual is under 16 years old.
The siblings’ father claimed that both he and the grandfather were domiciled in Brazil despite each of them only having lived there for a short period of time.
The FTT was presented with a large amount of evidence about the lives of claimants and their family. Whilst their story is too detailed to be summarised here, the FTT did highlight a number of key facts in reaching its decision.
In particular, the Tribunal found that the following factors were not strong indications of domicile:
- The location of a main bank account;
- Indefinite leave to remain from a country’s authorities;
- Conversion to Catholicism;
- Making friends and contributing to local communities (as this could simply indicate a gregarious personality);
- Service under an armed forces (as this was more likely to reflect a desire to continue personal professional success in this case);
- The sale of certain personal possession prior to moving overseas (e.g. a car).
However, other factors were given particular weight by the FTT including:
- The behaviour of a person at key life stages when they have more ‘freedom’ to move for a ‘fresh start’ (e.g. on leaving a job or on children leaving school);
- The purchase of residential property (particularly more desirable property);
- The refurbishment of residential property to suit the owner’s tastes;
- The ability or attempt to earn suitable income in a country;
- Permanence in a particular area (as opposed to many areas in a particular country).
The father attempted to downplay his and the grandfather’s attachment to the UK and insisted that they both always intended to live in Brazil, despite only having lived there for a few years. He argued that they were compelled to live in the UK for employment, family commitments, and other mitigating reasons.
However the FTT found that their actions contradicted this claim and instead ruled that they were both domiciled in the UK and had never been domiciled in Brazil.
The Tribunal noted that the father’s professed attachment to Brazil was little more than emotional fondness which fell short of an intention to reside there permanently.