Think of tax advice as falling into three parts between which the taxpayer must weave their way back and forwards with HMRC checking their workings – firstly the law must be correctly interpreted and understood, secondly it must be accurately applied to the facts, thirdly it must be persuasively set out and presented. Within this there is a layer of core building blocks that will present themselves for consideration again and again.
"...An individual’s domicile is highly fact sensitive..."
This is especially true for offshore tax planning and non-resident and non-domiciled individuals. One of these building blocks is an individual’s domicile status. Most UK tax practitioners know the dangers of assuming that this particular building block is in place and failing to ask the necessary questions. It is worth not only investing time and effort in nailing these key points so far as possible but in recording the results. This not only provides a solid basis for tax planning going forward but it can significantly reduce the risk of obtrusive and protracted enquiries into the past - bearing in mind that HMRC now have a very long period to enquire into offshore matters, in some cases over a decade. In fact, in a recent matter, the production of a complete and well presented analysis of domicile with supporting records forestalled the enquiry altogether. Of course, that will not always be the case, but where the tax position is fact sensitive having all of the necessary records and documents to hand with legal opinion that supports your filing position can be a huge advantage and save considerable time, effort, anxiety and of course money. Think of it as insurance – except that you will almost certainly be making a claim!
Why does this strategy work so well in the case of domicile? An individual’s domicile is highly fact sensitive and often the evidence required to prove that domicile is in the long distant past where memories fade and crucial witnesses may be dead. It covers all aspects of an individual’s life and can require investigation not only into the life of the individual but others connected with them as well. There are certain groups of individuals where a particular care is required and planning of this nature is essential. These include individuals with a domicile of origin in the UK who argue they have a domicile of origin elsewhere; children who are UK resident but derive a domicile of origin from their grandparents or parents particularly in a country with a favourable Estate Duty Treaty – Italy, India, Pakistan; and long terms residents with dwindling connections to their former home.
Enter the “domicile pack”. So what might such a pack include? A domicile pack might comprise three elements: a legal opinion supporting the domicile claimed; the documentary evidence that supports that opinion including a record of where assets are located and a relevant will; and witness statements. Whilst this sounds substantial, clients will often request a report on their domicile status or an opinion on their domicile, when they start to plan their tax affairs. To provide a meaningful report or opinion, this evidence is required in any event and even this is likely to be less wide ranging or intrusive than the enquiry of a court in the event of litigation. Collating, storing and updating this information (and I’d advise every five years) enables a coordinated and fast response going forward and avoids the inevitable discrepancies that arise in providing piecemeal information to HMRC.
A strong legal opinion will examine all of the evidence in support of the client’s domicile opinion. Every client’s circumstances are different and the important facts are not always obvious. It takes careful questioning, objectivity and tact to draw out the salient facts. Assumptions must be avoided. When the client says they are married, it is worth checking to whom. When they refer to their husband, wife or partner, do they mean “common law” wife or husband? A fresh pair of experienced eyes is required to review the facts and any previous advice. One lesson from the Requirement to Correct regime is that clients and practitioners are over optimistic about the likelihood of success and the strength of their case and following Gulliver HMRC are unlikely to consider themselves bound by former rulings.
The steps required to prove domicile can be gleaned from case law and HMRC guidance in their Residence, Domicile and Remittance Basis Manual (RDRM 23080). Those steps should be carefully documented eg. travel records, identification papers, visits to family and friends, memberships of clubs and societies, following up on news from home, an appropriate will.
Evidence is best collated when the client is alive and has capacity, particularly if any tax dispute is likely to arise after their death. This may not always be possible. The starting point for domicile is a domicile of origin and that generally means understanding the domicile position of a client’s parents, who may not be alive or have full capacity. A witness statement is not as strong as a live witness and it may be perceived as self-serving, but it is certainly better than nothing.
There is considerable skill to managing a domicile enquiry once it is underway and careful planning well in advance is often key. My experience in assisting to compile such packs is that they can be a key contributor to success and can even prevent a client finding themselves in that position in the first place.