Legal Domicile and how it Affects Tax Liability

The question of domicile is not always as straight-forward as it may appear. Though on the surface it may seem to be a simple question of which country someone lives in, this is not always the case.

Legal domicile is a complex legal concept that can have an impact on an individual's tax liabilities, including income tax, capital gains tax and inheritance tax.

What is meant by legal domicile?

Your domicile can be the same as your nationality or your country of residence, but it isn't always. For example, you could have been resident in the UK for many years and hold British citizenship but still be legally domiciled elsewhere.

Your domicile can be summed up as the country you consider to be your permanent home, even if you are not currently living there and have not lived there for a long time.

If your permanent home is in a country that is made up of several different states or nations that all hold separate jurisdiction, then your domicile would be the specific state or nation rather than the country as a whole. For example, in the UK individuals are legally domiciled in England and Wales, Scotland or Northern Ireland (though, in practice, much of the tax law in the UK applies to the UK as a whole). Equally, anyone who considered their permanent home to be in the USA or Australia would be domiciled within a particular state, such as California or Queensland.

How can your legal domicile affect your tax liabilities?

Different countries have different rules and systems for dealing with tax. For individuals who live and own assets in only one country, this doesn't tend to be an issue. However, where individuals have links with more than one country, it can be difficult to know to which jurisdiction their primary tax obligations lie. Some countries use the concept of legal domicile to determine this, whereas other rely more on the question of residence.

The UK has historically used a system based on a mixture of legal domicile and residency. However, the 2025 tax reforms (often referred to as the 'non-dom' reforms) changed this. The UK tax system is now much more reliant on residency than legal domicile.

Determining your legal domicile

You can acquire a domicile in one of three ways:

1. A domicile of origin,
2. A domicile of dependency,
3. A domicile of choice.

Everyone has a domicile, but you can only have one at a time. We all start with a domicile of origin, but over time this could be replaced by a domicile gained by dependency or by choice.

In situations where a domicile of origin in superseded by a domicile of dependency or a domicile of choice, the domicile of origin isn't destroyed. Instead, it is held in suspension and is revived when a domicile of choice or dependency is given up without a new one being acquired.

Domicile of origin

Your domicile of origin is determined by your parents and where they were domiciled at the time of your birth.

If your parents share a legal domicile, this will be straight-forward. If their domiciles differ, then determining your domicile of origin will be more complex.

• If your parents were both alive and married at the time of your birth, then you would take on your father's domicile.
• If your parents were unmarried at the time of your birth, or if your father had died before this date, then you would take on your mother's domicile.

Your domicile of origin can be more complicated if you are adopted or if you have same-sex parents. If you are uncertain about your domicile of origin, we can help you determine your legal position.

Domicile of dependency

Up until the age of 16, a child's legal domicile is determined by the domicile of the parents they are dependent on. If a parent changes their domicile during this period, then the child's domicile will change alongside this.

• If your parents are married and living together, your domicile of dependency will be determined by your father's domicile.
• If your parents are living apart and you live with your mother and have no home with your father, then your domicile of dependency will be determined by your mother's domicile.
• If your father is dead, your domicile of dependency will be determined by your mother's domicile.

Historically, women legally took their husband's domicile as a domicile of dependency on marriage. The law on this changed on 1st January 1974. After this date, women legally had a choice about whether or not to adopt their husband's legal domicile on marriage. Women who married before 1974 retained their husband's domicile, but this is now treated as a domicile of choice, not of dependency.

Domicile of choice

A domicile of origin is hard to change, but it is possible to establish a domicile of choice providing certain conditions are met. In order to establish a domicile of choice, you would need to be resident in that country and be intending to stay there permanently.

There is no specific time requirement for this, though the longer you have been resident in a certain country, the more it will be presumed that you intend to remain there permanently. It is also not necessary to have applied for or been granted a change of nationality in order to adopt a domicile of choice though, again, if you have done these things they can be used as evidence to support your decision. If you were called on to prove your domicile of choice, the burden of proof would be on you.

Non-dom tax reforms

The rules on taxation in the UK for residents who are legally domiciled elsewhere changed significantly in April 2025.

Tax on foreign income and capital gains (FIG)

Before April 2025, non-domiciled individuals could be resident in the UK for 15 of the preceding 20 tax years before they were considered 'deemed domiciled' for tax purposes and therefore taxed in line with other long-term UK residents.

Before an individual was 'deemed domicile', they could opt to be taxed on the remittance basis. This meant that while they had to pay tax on UK income and gains in the same way as any other UK resident, any foreign income or gains would only be taxed when it was remitted to the UK.

The 2025 non-dom tax reforms changed this.

New UK residents are now exempt from paying tax on foreign income and capital gains for the first four years of their residency in the UK. This relief has to be claimed each year, it will not be applied automatically. After the four year period, new residents will need to pay the same tax on foreign income and gains as permanent UK residents, regardless of their nationality or domicile.

These changes were intended to make the system fairer, and to ensure that all long-term UK residents are expected to pay tax on the same basis.

It's worth noting that new arrivals to the UK are eligible for 100% relief on foreign income and gains for the four year period only if they have not been resident in the UK in the ten tax years immediately before their arrival.

Overseas Workday Relief (OWR)

Overseas Workday Relief will continue to be available on earnings from work done outside of the UK. From 6th April 2025, OWR eligibility has been based on whether individuals are eligible for the four year FIG relief regime.

Employees who are eligible for FIG relief will benefit from relief on either 30% of their overseas employment income or £300,000 per year, whichever is lower. This relief is available regardless of whether the earnings are brought into the UK or not.

Inheritance tax (IHT)

The domicile-based system for inheritance tax has now been changed for a residence-based system.

All UK-based assets belonging to an estate remain subject to UK inheritance tax rules, regardless of the legal domicile of the person who has died.

However, any non UK-based assets belonging to an estate may also now be subject to UK inheritance tax rules if the person who has died was resident in the UK for at least 10 out of the 20 tax years leading up to the tax year in which the death occurred. This exposure doesn't end when the individual leaves the UK. Depending on how long they were resident here, exposure could continue for three to ten years afterwards.

Legal domicile does still decide which law will govern any moveable assets on death. If you think this may affect your estate, and if you have connections with the EU, you might find our help guide on the EU Succession Regulation helpful.

Temporary Repatriation Facility (TRF)

When the 2025 'non-dom' tax reforms were introduced, the government also announced that a temporary repatriation facility (TRF) would be available for long-term residents who had been taxed on the remittance basis prior to April 2025. This is designed to help them adapt to the new system of taxation.

Individuals who have unremitted foreign income and gains that are now subject to UK taxation can use the TRF to elect to designate amounts to be taxed at a rate of 12% in the tax years 2025/2026 and 2026/2027. The rate will then rise to 15% in 2027/28. These 'designated amounts' will not be otherwise taxed by the UK.

In order to benefit from the TRF, individuals will need to be resident in the UK during the relevant tax years.

How to get support with this

If you need support with determining your legal domicile or exploring how the 2025 tax reforms might affect plans for your estate, please do get in touch.