IHTM13024 - Change of Domicile: Deemed Domicile

Even if a person is domiciled outside the UK under general law, two special rules apply to those who have emigrated from the UK or to those who have been resident here for many years IHTA84/S267. If either rule applies then, in most cases, we treat them as domiciled within the UK for the purposes of IHT, i.e. domicile includes deemed domicile. For all other purposes, e.g. succession, the general law applies.

The “three year” rule - IHTA84/S267 (1)(a): For the rule to apply they must have been domiciled in the UK both on or after 10 December 1974 and within three calendar years before the relevant event, e.g. gift, death.

The “17 out of 20” rule - IHTA84/S267 (1)(b): For the rule to apply they must have been resident (for Income Tax purposes) in the UK on or after 10 December 1974 and in not less than 17 out of the 20 years of assessment, i.e. 6 April - 5 April, ending with the year of assessment in which the relevant event falls.

Example

If someone who had been resident and domiciled in England throughout his life leaves for good on 1 January 1998 and settles in Spain permanently, under general law he acquires a domicile of choice in Spain. On 2 January 2001, he makes a gift of £300,000 from his Spanish bank account to trustees of a discretionary settlement in Gibraltar. Ordinarily, no transfer of value arises as this would be a gift of excluded property.

Furthermore, the first rule cannot apply because the gift occurred more than 3 calendar years after his emigration. However, the second rule is in point because we are concerned with tax years and to avoid this rule he must have been non-resident for 4 tax years in the relevant 20- year period, which ends with the year 2000/01.

In particular he will have been resident in the UK for Income Tax in 97/98 because he was here for more than 6 months. So, he was non-resident in 1998/99, 1999/2000 and 2000/01 only. Accordingly, the chargeable transfer will be caught by the 17/20 rule. If the gift were made on or after the 6 April 2001 then neither rule would apply.

We follow any residency rulings made by CNR with one qualification. For the tax years before 6 April 1993, someone was considered to be resident in the UK if they set foot here during the year and had a dwelling house in the UK, which was available for their use. However, availability of a dwelling house was ignored for the purposes of our 17/20 rule (IHTA84/S267 (4)).In the absence of any information, you should assume that residency rulings for Income Tax made prior to 93/94 were not made on the basis of this rule alone.

However, there are exceptions, i.e.

• where domicile does not include deemed domicile,
• when considering the double taxation agreements (IHTM27160) with France, Italy, India or Pakistan (though where there is a general law domicile in Italy, India or Pakistan, IHTA84/S267 can apply to chargeable lifetime transfers).
• when deciding whether savings products in the Channel Islands or the Isle of Man and (in cases where domicile is still relevant)
• in deciding whether government securities, are excluded property ( IHTM27270)
• when deciding whether property settled before 10 December 1974 is excluded property ( IHTM27212).