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HMRC win another domicile case: when retirement never comes…

HMRC win another domicile case: when retirement never comes…

HMRC won in the recent First Tier Tribunal in the case of Ian Strachan, TC8858. This is a case where the taxpayer argued that he had acquired a domicile of choice in Massachusetts.

There are some significant points in this case of wider relevance than the specific point about the appropriate test for residence in determining domicile of choice. In particular, there is interesting commentary on the position of an individual whose domicile position depends on having a definite intention to leave the UK at some time in the future, which applies equally to those who have a non-UK domicile of origin. Individuals with a non-UK domicile of origin need to show that their intention to return to that country is more than a vague contingency. In Mr Strachan’s case, the tribunal examined whether his residence in the US was where he intended to “end his days”.

The tax at stake in the case was the income tax due in the tax years 2011/12 to 2015/16, rather than inheritance tax. Mr Strachan was not able to give evidence at the tribunal as he suffers from Alzheimers disease. He had previously provided information to HMRC.

The test for the overseas home

Mr Strachan had a domicile of origin in England, and in the tax years in question, he continued to live in England. He had become a US citizen, but in 1971, before he had any links with Massachusetts. His wife had a holiday home in Massachusetts, which he intended to retire to. He claimed to have acquired a domicile of choice in Massachusetts. The question was whether he had established his “chief residence” there. His Counsel based his argument on an interpretation of wording in previous cases, to say that if he had a home there where he intended to end his days, that home was his “chief residence”. The tribunal found that “chief residence“ should be interpreted as a multi-factorial test. Applying that test to the facts, he had not acquired a domicile of choice in Massachusetts.

Intention to leave England

In domicile cases, it is sometimes said that the individual intends to return “home” when he retires, and therefore has a definite intention to leave.  However, many people who give up a regular paid employment then take on a portfolio career, for example of non-executive directorships. Mr Strachan had retired from full time work, aged 72, in 2015, but then took up other roles. The tribunal found that on the evidence, Mr Strachan intended only to leave London and “end his days” in Massachusetts if or when he was unable to continue with his life in London, in particular, if or when was unable to use his skills and experience there in paid or unpaid roles. They said “it was thus entirely possible that he would continue to live in London until he passed away as the result of a sudden traumatic event such as a heart attack or stroke, and would thus never “end his days” in Massachusetts”. In the event, he moved to Massachusetts in 2022 after he became too ill to work.

In her evidence, Mr Strachan’s wife said. “I am not sure why you feel it so important that we move from the UK when my husband was vigorous, active, eager to make a contribution. If we had moved to Massachusetts at that time [in 2016], he would have had nothing to do except play golf in summer and read history books in the winter. I don’t know the rush to take a human being out of the country; he was still able to make a contribution to this country, thank you very much. I am not sure why you are trying to push my husband out of the country when he is still making a contribution and go somewhere where he cannot.”

This is a point which could apply equally to an individual who has a non-English domicile of origin and who is claiming not to have acquired a domicile of choice in England. An argument that there is a definite intention to leave, but in circumstances which, at his age, have a significant chance of not arising, is likely to give rise to tax problems. The type of argument put forward by Mrs Strachan can be answered by saying that an individual doesn’t have to leave the UK while they are still making a contribution, but if they choose not to leave the UK, they do have to accept the tax consequences.

Intention to leave England “when I retire”

Individuals may rely on this intention to show that they are not domiciled in England, but nowadays this wording may be inappropriately simple. Someone who leaves an employed role in their 50s or 60s may look to build a portfolio career, and consequently won’t have a clear “retirement”. That portfolio might include non-executive directorships, trustee roles with charities, and investments and mentoring of start-up businesses.

Response to this case

For a person whose domicile position depends on an intention to leave the UK, but who has a portfolio career, it might be appropriate to sit down every, say, 3 years, with a medical report to hand, and look at the term of existing employment contracts, and any potential future contracts. It may then be worth reviewing the tax position if non-domiciled status is lost, and considering whether or not to take out life insurance or to plan for inheritance tax (e.g. by investing in assets qualifying for Business Property Relief). Equally, it might be worth looking at shifting the work portfolio over time to roles which could be carried out on a remote basis, to allow the individual to be based overseas and make business visits to the UK.