32 | LEGAL LESSONS WORDS | Lindsay Kinnealy
BUSINESS Pack up carefully
Home is where the heart is, but where’s my domicile address? When clients prepare to retire and relocate overseas, attracted by lower property costs, warmer climes and a high standard of living … do they think through all of the legal implications?
country like the UK for a new home overseas … but will they have planned ahead for their move overseas and what would happen if they want to return? This healthier and wealthier group of
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older buyers, retiring earlier and living longer, will end up with assets located in more than one country.
And, without realising it, they will also
end up complicating their legal affairs, particularly in relation to inheritance and tax issues at home and abroad. So ... how do they know where they
should be paying tax and what will happen to their property on death? Access to specialist overseas property lawyers and tax specialists (ideally before they move) can be invaluable as the tax regimes around the world vary considerably. In many countries the terms
“residence” and “domicile” are interchangeable in referring to one’s home, but in common law jurisdictions, including for UK nationals, they are different legal concepts and can
tatistics suggest that, by the year 2050, 1 in 5 pensioners will have left a typical north European
signifi cantly impact on a client’s tax
liabilities.Many people relocating abroad do not consider this before they “up sticks” but it is certainly worth drawing their attention to certain key factors which might affect them. For instance, a UK ex-pat’s
continuing liability to UK tax will depend on his residence, ordinary residence and domicile status. Whilst many UK domiciled ex-pats retain that status, it is possible to change it if desired but it’s not simply a case of moving to live abroad. The majority of people assume that
their domicile is the country in which they live, but this is not necessarily the case, particularly where English law is concerned. It is also not the same as being resident or non-resident for income tax purposes. In the UK, domicile is a concept of general law and many factors affect it. Broadly speaking, a person’s domicile is considered to be where they have their fi xed and permanent home to which (when absent) they have the intention of returning. Entirely distinct from nationality or residence, they can only have one domicile at any given time. In
English law, everyone has a “domicile of origin” - usually the domicile of their father, if their parents were married when they were born, or the domicile of their mother if not. This remains their domicile of origin throughout their lives and cannot be changed. It is possible, however, for a person to acquire a “domicile of choice” by moving to live abroad with the intention
“This group of older buyers will end up with assets in more than one country”
of settling there and making it their permanent home for the rest of their life. This would usually involve
consciously severing many of their ties to their domicile of origin. People often believe that they have changed domicile when, legally, they have not. Mr Jones, for example, could retire
to the South of France making that his domicile of choice, and then he could move to Spain but, until he has clearly acquired a new domicile of choice, his domicile of origin will again apply. If he always intended to return to France he would retain French domicile of choice. This can even happen if an individual
moves home within the same country: Canada and the United States, for example, have inheritance laws that vary from state to state and each state is considered to be a separate domicile. The defi nition of residence is no less
complicated for tax purposes and once again varies from country to country. One of the criteria taken into account
Home | is not where the heart is according to the law, so be careful what you sign
in the UK is a person’s physical presence there within a particular tax year. If present for 183 days or more, they will be deemed resident. Some countries also determine residency by reference to other factors, such as home ownership, family and fi nancial interests. But ordinary
Lindsay Kinnealy is Head of Overseas Property at Pannone LLP and can be contacted on: 0161 909 4891 or by email at:
lindsay.kinnealy@
pannone.co.uk
residence in the UK, however, requires habitual residence there and confusingly a person can be resident without being ordinarily resident and vice versa … Expert, specialist tax advice is essential in order to be certain of one’s position both at home and abroad. A person’s country of domicile and
residence, whether these are both the same or different locations, can impact considerably on their liability to taxation. If Mr Smith is resident, ordinarily resident and domiciled in the UK, he will be liable to tax on his worldwide income. If he is no longer UK resident, he would only be taxed on UK income. The issue of inheritance tax can then
give rise to the further classifi cation of “deemed domicile” by HMRC. This is a legal concept for inheritance tax purposes where a person is treated as if they were domiciled in the UK at the time of a transfer if they were domiciled in the UK within three years of the transfer, or they were resident in the UK in at least 17 of the last 20 years. This is a very basic outline only of a very complex subject. For some people these issues can be very complicated and require expert guidance, so whether your clients are would-be globetrotters or have already taken the plunge to move overseas, it’s worthwhile making sure these issues have been taken into account. If they haven’t, it’s always possible to fi nd out what measures are available to minimise the effects of or benefi t from the residency and domicile regulations. All overseas property professionals should fl ag this to their clients in case they need to seek suitable advice.
www.opp.org.uk |MARCH 2011
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