As many non-doms become deemed domiciled in the UK, HMRC are taking the opportunity to challenge their historic domicile status.
A notable increase in domicile enquiries from HMRC appears to confirm our understanding that HMRC is dedicating specific resources to this area. This may be driven by a perception at HMRC that there is one final opportunity to challenge the earlier tax returns of those who are about to become deemed domiciled. It seems reasonable to expect that in the future HMRC may be more relaxed about domicile, as non-dom status will have a finite life of 15 years; that may be another reason why it appears that domicile enquiries are on the increase now.
In our experience, investigations by HMRC into a person’s domicile status can be prolonged and intrusive. In common with other investigations and enquiries by HMRC, requests for information are frequently backed by the issue of formal information notices and the threat of penalties for non-compliance.
Typically, HMRC will focus enquiries on those non-doms who have either been born in the UK with an overseas domicile and those who were born abroad but have lived in the UK for many years. The general rule of thumb is that the longer the person has lived in the UK, the more likely it is that their domicile status will be challenged. A particular focus of HMRC in the past has been to challenge domicile status if the person has died in the UK.
So how should you deal with domicile enquiries or, ideally, how can you plan in advance to ensure the position is as robust as possible if HMRC makes a challenge to non-dom status?
Maintaining non-dom status in the face of HMRC investigation often boils down to the quality of evidence. In principle, a person will not acquire a UK domicile of choice unless they come to the UK with the intention of living here indefinitely, or permanently. But if a person comes to the UK for a long period to build a career and with an intention ultimately to retire to their country of origin, what evidence can be maintained to show that this is the true intention?
Theoretically, HMRC could ask questions and request evidence of events from as long as 70 or 80 years ago. In practice, it is rarely possible to provide the evidence they have requested in these cases. However, maintaining a non-UK domicile status must be viewed as an ongoing task of keeping records of travel to the home country, evidence of assets situated there, social and family links and, very importantly, formulating a plan with a timetable for emigration and taking steps towards completing the plan. This is difficult for many, as they will have an automatic right to return and live in their home country; they may not need to purchase a property there until the move is made or may not have the available cash to do so in advance, and very little will exist in the form of documentary evidence.
If you would like to discuss domicile or HMRC investigations on domicile please contact us.