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, says Hetal Sanghvi, tax partner at Edwin Coe.
In a briefing note on 7 November, she said 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.
"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!"
By Hetal Sanghvi, tax partner at Edwin Coe