Domicile of choice: A stark reminder HMRC are really focusing on a multi-factoral approach to critically assess evidence

The base line parameters around domicile are well known in the industry, and yet HMRC’s new approach poses a threat to those relying on their domicile position more and more so. We have seen HMRC, dare we say, almost easily win some recent cases; Henkes v HMRC , Coller v HMRC and more recently Shah vs HMRC.

It is widely accepted that the burden of proof is on HMRC to prove an individual has acquired a domicile of choice in England, where one asserts that they have retained their domicile of origin (and this is different to England). In the recent case of Shah v HMRC, Mr Shah died in 2016, and the administrators of his estate sought to rely on him retaining his Indian domicile of origin, and the India UK old estate duty treaty override to argue that his non UK situs assets were outside of the scope of IHT.

What are the facts of the case? We have set out a timeline approach for ease of reference:

• 1929: born in Karachi (pre partition India)
• 1929 – 1954: Moved between Karachi and Tanzania for education etc
• 1954 – 1957: Came to the UK to study pharmacy
• 1957 – 1972: lived in Tanzania, got married in India in 1960
• 1972 – 1973: moved to India for work
• 1973 – 1997: moved to the UK with family and ran pharmacy related businesses
• 1997: retired from pharmacy
• 2010: daughter died in the UK
• 2011: wife died in the UK
• 2016: Mr Shah died aged 87, in the UK

Mr Shah’s son argued that Mr Shah’s initial relocation to the UK was in search of a job, to support his family and he intended to return to India but had been unable to do so due to the death of his wife, looking after grandchildren and his failing health.

HMRC took a multi-factoral approach and the First Tier Tribunal considered the following to be noteworthy points:

• Mr Shah only visited India for 3 weeks in a 43 year period
• Mr Shah had no bank account in India
• Mr Shah did not have any assets or investments in India
• Mr Shah had acquired British citizenship
• Mr Shah completed a form DOM 1 but did not submit it and it was found to have inaccuracies
• Mr Shah experienced trigger events but did not return to India (e.g. wife died, sold business, sold family home, etc)

HMRC argued that Mr Shah was unlikely to relocate given he had barely spent any time in India over the past 43 years, had made no plans to relocate, and had close family ties in the UK.

Commentary

What we are seeing with HMRC is a change in approach, HMRC are critically assessing the evidence and considering a wide range of factors. Whilst it is well established that a domicile of choice does not require a positive intention to return to the country where one has a domicile of origin, we see from the recent Henkes case that HMRC are taking into consideration the ties that the individual has to their country of domicile of origin more and more.

This case acts as a good warning to those individuals relying on their domicile based on vague intentions, particularly where they intend to take advantage of an old estate duty treaty. We have seen a significant rise in domicile enquiries and HMRC’s recent wins will give them the confidence to be bold in their challenges. So what can individuals do? Build the evidence!

We work closely with our clients to provide comprehensive domicile opinions, and help them maintain a bible of documents in support of their domicile and intentions. For further information regarding this topic please contact Hetal Sanghvi, Sean Bannister or David Goepel.

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