What Does Domicile Mean and Why Does it Matter in Probate?
27 April 2017
By Probate Solicitor Rachel Curtis
Domicile means the country you consider to be your permanent home. This might be different from your country of origin, or even the country in which you are living. In Probate, Domicile can have an impact on whether or not Inheritance Tax is payable to HM Revenue & Customs after death.
Why Does Domicile Matter in Probate?
With more and more Brits buying second homes abroad or relocating to warmer climes, it’s becoming increasingly common to live in one country and have assets or property in another.
When someone dies the administration of their Estate needs to encompass all the assets the deceased person owned, wherever those assets are situated in the world. It will also be necessary to consider the Inheritance Tax (IHT) implications of owning foreign assets. In order to establish whether IHT is payable on foreign assets, the Executor or Administrator of the Estate will need to think about the deceased person’s ‘domicile’.
Domicile describes the country that a person treats as their permanent home, or lives in and has a substantial connection with. It’s somewhere they intend to return to if they currently reside elsewhere.
It’s important to note that domicile differs to residence. Residence is where someone lives, whereas domicile is where someone lives and/or intends to remain. So if someone spends a lot of time at their property in Spain but still considers England to be their main home, then England will be their domicile. But if someone relocates to Australia and has no intention of returning to the UK to live, their domicile will be Australia.
Each person acquires a domicile of origin at birth. This is usually their father’s domicile at the time of their birth. Many people retain the same domicile for their whole lives, but some may acquire a different domicile, referred to as a ‘domicile of choice’ or ‘domicile of dependence’. This will happen if someone emigrates, for example.
Paying Inheritance Tax
Whether or not Inheritance Tax is paid depends on whether a person is domiciled or ‘deemed domiciled’ in the UK. Deemed domiciled means that if a person is not domiciled in the UK, HM Revenue & Customs will generally still treat a person as being domiciled in the UK if certain conditions are satisfied.
This may mean that a person is domiciled in a place he/she does not intend to be, and evidence as to their actions and intentions will be required on death to prove domicile.
If a deceased person was domiciled in the UK, Inheritance Tax is paid on all worldwide assets including property, bank accounts and investments. If a deceased person was domiciled outside of the UK, then Inheritance Tax is only paid on assets that are held in the UK.
If Inheritance Tax is paid on the same assets in the UK and the country in which the deceased was domiciled then an Executor may be able to reclaim tax, but only if the country has signed up to the Double Taxation Treaty.
When someone domiciled outside the UK dies leaving assets in the UK, then a Grant of Probate must be taken out in England to deal with those English assets.
The administration of an Estate can be more complicated or problematic where a person owns assets in a country which differs from their domicile, especially if he/she has failed to organise their affairs during their lifetime.
If you’re administering an Estate and are uncertain as to whether the deceased was domiciled in the UK or abroad, we can help. Our Probate Specialists can establish where the deceased was domiciled, whether Inheritance Tax is due, and can also prepare and submit an Inheritance Tax return on your behalf.
With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excl VAT), Property and Estate Administration affairs.