Domicile and the UK/India Double Estate Tax Treaty: Actions speak louder than words

Domicile and residence are terms that are often used interchangeably but when it comes to UK tax the distinction is critical.

Domicile essentially refers to the country that a person considers to be their permanent home – the place to which they feel most connected, or where they belong. Residence on the other hand is primarily based on physical presence in a country.

For an individual who is born with a domicile outside the UK, then even if they move to the UK there can be tax advantages if they can demonstrate that they have kept their non-UK domicile.

HMRC on the other hand will be keen to try and show that an individual has acquired a ‘domicile of choice’ in the UK, on the basis they are resident in the UK and have formed the intention to remain there permanently or indefinitely.

It is up to the party asserting the change in domicile to demonstrate, on the balance of probabilities, that it has happened.  

There have been many domicile cases over the years, one of the most recent being the recent First Tier Tribunal case involving Mr Shah (deceased) (Shah v HMRC [2023] UKFFT 00539 (TC)), where HMRC successfully demonstrated that the deceased had acquired a domicile of choice in the UK.

The facts are relatively straightforward. It was accepted that Mr Shah had a non-UK domicile of origin. He moved to UK in 1973 with his family where he worked as a pharmacist.  He sold his business in 1994, retired in 1997 and died in the UK in 2016, following a decline in his health. His son claimed it was always his father’s intention to return to India, but that this was delayed due to deaths in the family and his father’s subsequent poor health.

HMRC argued that Mr Shah did not have any assets in India, nor did he spend any time there (he had only visited the country twice in the 43 years that he had been living in the UK). The Tribunal found that Mr Shah’s links were closer to the UK and that ‘any intentions he had to move to India were, we find, at best vague”. On this basis, and not unsurprisingly, the Tribunal found that Mr Shah had acquired a UK domicile of choice.  

For long-term UK residents (those who have been UK resident for 15 out of 20 of the previous tax years), a deemed UK domicile will apply so that their estate is subject to UK inheritance tax in any event. However, the UK/India double estate tax treaty can override the deemed domicile provisions where an Indian domicile of origin is retained on death. This is why Mr Shah’s domicile on death was so important.

The case highlights areas of attack from HMRC and the importance of intentions and record keeping in demonstrating anon-UK domicile. Retaining a family home, making regular trips and having provisions in a Will for burial/ashes scattering to be in the home country all help in demonstrating the desire to return. For those intending to rely on the UK/India treaty to protect assets for inheritance tax, taking advice is important.  

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