What is ‘ Domicile' and why is it important?

Taxation of individuals in the UK is primarily based on the individual's residence and/or domicile. For inheritance tax purposes, domicile is a very important factor. The UK law of domicile operates on two separate levels. First, there is a general law of domicile in accordance with which an individual's domicile is substantially based on facts. Generally speaking, an individual acquires a domicile of origin (in most cases that of his father) at birth but, aside from this, domicile generally relates to where the individual has his permanent home. If an individual is considered to be UK domiciled under general law (strictly a person will be domiciled in England, Wales, Scotland or Northern Ireland), he is so domiciled for the purpose of all taxes including inheritance tax. However, there are also special legislative rules in respect of inheritance tax alone under which, even if an individual is not domiciled in the UK under general law, he may nevertheless be treated as domiciled in the UK for inheritance tax purposes. For example, if he has been resident in the UK for at least 17 of the last 20 tax years.

Where an individual is currently non-UK domiciled but may become either domiciled under the general law or deemed domiciled in the UK under the above “long term resident” rule, there are special tax planning opportunities which are designed to protect the individual's current assets from future inheritance tax. For an individual in such circumstances an Offshore Trust is designed to achieve these objectives.

PLEASE NOTE THAT THE UK CHANCELLOR OF THE EXCHEQUER HAS ADVISED THAT HE INTENDS REVIEWING THE LEGISLATION FOR NON-DOMICILES.

Why do I need to take tax/legal advice prior to creating an Offshore Trust or incorporating an Offshore Company?

In certain jurisdictions, the disposal of assets into a trust may trigger a liability to taxation and it is therefore essential that settlor obtain appropriate, professional advice as to the fiscal ramifications of creating a Jersey trust or incorporating a Jersey company. Such matters will, of course, be determined by reference to the settlor's place of residence and domicile.
WE WOULD HIGHLIGHT IT IS ESSENTIAL THAT YOU DISCUSS WITH YOUR ADVISER WHETHER THERE IS A NECESSITY TO REPORT THE CREATION OF THE OFFSHORE TRUST TO THE RELEVANT TAX AUTHORITIES.

It is this firm's practice not to accept appointment as trustee without confirmation that formal advice has been received and if assistance is required, Moore Stephens International has member firms in over 80 countries that can advise on the legal and taxation issues applicable in the settlor's place of residence. As it is an offence to establish a trust and use that entity to conceal income or gains from the revenue authorities in the settlor's country of residence, such advice is essential.

What UK Tax implications need to be considered?

For information on this subject, please contact Kathy Gillen

Introduction