The rules around this can be quite complex and an individual may be of the view that they are non-UK domiciled, only to subsequently learn that that is not the case when their circumstances are considered.

What is domicile?

Domicile is a legal concept and individuals will generally be considered to be domiciled in the country that they have strong ties to, or the country where they have made their permanent home. It should be noted that it is not necessarily automatically the same as an individual’s nationality or residence status.

Every individual will have a domicile, which they originally acquire at birth. However, that is not necessarily going to be the same country of birth or where they currently reside.

It is only possible to have one country of domicile at any given time and an individual can be domiciled in a different country to where they are resident.

Therefore, with many clients displaced over the last 18 months due to the pandemic, it is essential that advisers ensure that financial affairs take into account the correct current domicile status. If not, any mistakes or assumptions could result in unexpected and potentially expensive tax issues for an unaware client.

There are three main types of domicile:

Domicile of origin – An individual is automatically assigned the same domicile as their father at birth, unless parents are not married, when it will be the same status as the mother instead.

Domicile of dependence – Until the age of 16, a domicile follows that of the person on whom you are legally dependent – if that person changes their domicile (through choice) then this will also change. If married before 1 January 1974, a wife would automatically acquire the domicile of her husband.

Domicile of choice – A domicile of choice is a self-acquired domicile. It is a domicile which a person chooses to replace their former domicile, which may be either a domicile of origin or domicile of choice. Only a legally competent person can choose their own domicile and this can be a useful tool for an individual when considering tax planning matters.

In the UK, an individual will self-assess their domicile status based on the prevailing facts. However, if there is a question over a domicile status, although HMRC are highly unlikely to give their opinion upon request, a court can make a formal ruling on a domicile as part of any legal proceedings where this status is in question.

How to establish a new domicile

When moving country, it will be necessary to take steps to establish and prove any new domicile of choice.

Important documents like a Will should be updated under the laws of the new country and also practical things like a driver’s licence should be amended to that of the new country of domicile.

Additionally, an individual should register to vote locally and ensure that as many of those ties cut in the original country of domicile as possible are established in the new country instead – for example, banking, insurance, registering with a new doctor & dentist that can get your crowns for teeth and even things like golf club membership help to evidence a permanent move.

Unless tangible items in the original country of domicile are cancelled, HMRC may be able to successfully argue that the original domicile still holds good.

Why is domicile important?

It is important that you know where you are domiciled as it will affect an individual’s tax position. Additionally, domicile status will determine which personal laws apply to an individual in various circumstances eg marriage, wills, succession.

This is especially important as different jurisdictions will approach the concept differently.

Why does domicile matter for expat clients?

For someone with a UK domicile, on death it is their worldwide assets that will be subject to assessment in the UK for Inheritance Tax (IHT). Anyone who is non-UK domiciled, will only have their UK based assets assessed.

Where worldwide assets are being assessed, tax relief may be available in terms of a double tax treaty but this might not be the case where the other country does not have an equivalent to UK IHT – and a number of countries do not.

Tax rules in the other country and how these interact or compare with tax rules in the UK also should be considered given that many countries do not have a direct equivalent death tax system. Someone who is non-UK domiciled, may have an advantage when restricting their assets held in the UK to the value of the IHT nil rate band, if this is available.

The current nil rate band for an individual is £325,000 ($450,000, €384,000) (2021/22 tax year). The residence nil rate band which is currently £150,000 (2021/22 tax year), may also be available if there is a main UK residence in the estate being assessed for IHT.

In summary, it is vital that advisers and their clients regularly review the current domicile status that applies to their circumstances. With many tools and strategies available from product providers, it is essential that these are used and regularly reviewed as part of an effective estate planning strategy.

This will then ensure that wealth management and retirement objectives are successful and not derailed by any unexpected surprises when it comes to an individual’s domicile status.

This article was written for International Adviser by Paul Forman, international sales and technical manager at Novia Global. 

NB: This article is based on our interpretation of the regulation as of August 2021 and can’t be relied upon. Tax is subject to individual circumstances and tax legislation can change, therefore expats will need to keep in regular contact with their advisers and be ready to react to potential changes in their situation.

The income tax department has announced that failure to link the cards will attract a fine of INR1,000 (£9.91, $13.63, €11.61) and the PAN card will become invalid for financial transactions after the deadline of 31 March 2021.

The linking, aimed to make financial transactions transparent and to nab tax evaders, was stipulated in the Finance Bill 2021 passed in parliament early this week.

It is mandatory for every person to quote the Aadhaar number in their income tax return and the application for the allotment of PAN, provided they are eligible for Aadhaar.

The government has, in the past, given several extensions to link the cards.

But now, as per the Finance Bill, 2021, it has introduced an amendment under which a person will be liable to pay a late fee of up to INR1,000 in case of non-linking of PAN with Aadhaar.

Invalid PAN card

As per section 234H, added to the Income Tax Act 1961 under the Finance Bill 2021, it is necessary to link the PAN card to Aadhar on or before the deadline provided by the government.

If not linked, the PAN card will become invalid and cannot be used for financial transactions after the due date.

If the PAN card is rendered invalid, it will affect a variety of financial services such as opening bank accounts, demat accounts for NRIs to invest in the Indian markets, all types of banking services and investing in mutual funds.

In case a person is required to furnish or intimate his PAN and the PAN is inoperative, it will be deemed that he or she has not furnished their number.

Under various provisions of the Income Tax Act, if a person does not furnish their PAN or gives an inoperative PAN he or she may have to a pay a higher TDS (tax deducted at source) or TCS (tax collected at source), and may not be able to file income tax return and may face the consequences of not filing the tax return.

Extension unlikely

Though the deadline to link the cards is unlikely to be extended beyond the deadline, NRIs hope the authorities will budge.

“It is highly unlikely that the deadline will be extended as the budget proposals are scheduled to be effective from April 1, 2021 as linking of the cards is one of the budget proposals,” said KV Shamsudheen, chairman of Pravasi Bandhu Charitable Trust, an NGO espousing NRI issues, who spearheaded a campaign to make NRI eligible for Aadhaar card issuance.

“However, exemptions can be made, in this case, in view of the inability of several NRIs to link the cards who are unaware of the deadline and the implications.”

Earlier, NRIs were ineligible for Aadhaar card as it was issued to resident Indians only.

A resident Indian is defined as one who stayed in India continuously for more than 182 days in a year.  If an NRI stayed in the country for more than 182 days, his NRI status will become invalid.

Later this period was reduced to 120 days in the 2020-21 budget. However, the government later decided that NRIs can also be issued the national ID card.

But a majority of NRIs did not bother to get the card as it was not mandatory.

Similarly, many NRIs did not apply for the PAN card for the fear of being included in India’s tax net.  Every person who has been allotted PAN as of 1 July 2017 and who is eligible to obtain Aadhaar number is required to link his PAN to Aadhaar.

The linking can be done online. https://www.incometaxindiaefiling.gov.in/home

PAN can be linked to Aadhaar through SMS services also. Send SMS to 567678 or 56161 from the registered mobile number.

Despite being granted a temporary relief by the country’s supreme court, the government has refused to grant a general relaxation that would keep them from falling into India’s domestic tax net.

Instead, India’s top tax authority, the Central Board of Direct Taxes (CBDT), said in a circular that no exemption for a forced stay in India due to the pandemic can be given.

This is because the sole purpose of the government is to ensure that a person does not escape paying tax by being a non-resident in India and his host country.

CBDT issued the circular on 3 March 2021; clarifying the tax residency status for the 2020-21 financial year of those who had to stay on in India during the pandemic.

The clarification increases the potential tax exposure of NRIs, as well as compliance obligations under India’s tax laws.

An NRI from the UAE had petitioned India’s supreme court to direct the tax authorities to allow exemption during the pandemic period.

The court duly directed CBDT to decide within three weeks on reliefs to be granted to NRIs on the payment of income tax for the financial year 2020-21.

The petitioner had gone to India in March 2020 on a visit and could not travel back after 120 days in India.

This involuntary extended stay resulted in him losing his NRI status under the Income Tax Act, 1961, thereby exposing his global income to tax in India.

No relief

The tax body, which reiterated the existing regulations, was noncommittal and refrained from providing the relief the NRIs sought.

The clarification surprised everyone as it provides that the period of stay in India during 2020-21 financial year will be counted for determining the tax-residency status in India.

CBDT has asked NRIs who may experience double taxation in the present financial year to file representation in a prescribed form by 31 March 2021.

NRIs are now required to determine their global tax liabilities on or before 31 March 2021; as the deadline to seek relief from double taxation on such global income expires on that day.

The affected NRIs will either have to challenge the court or the notification from CBDT which gave no relief to NRIs who, having overstayed in India due to the pandemic, now fear that their overseas earnings would be taxed.

“NRIs from the UAE may not have the option to make a representation to the government who had to involuntarily reside in India for a period of more than 182 days and whose complaint may not be related to ‘double taxation’ but to ‘taxation of income in India’ which otherwise would not have been taxed at all on account of the tax neutral nature of UAE,” said Benoy Sasi, international lawyer at DIFC Courts.

Residency status

The circular clarified that there would be no double taxation and the determination of residence shall be done on the basis of relevant double taxation avoidance agreement.

The UAE is a signatory to the DTA with India.

Residency status is determined by the duration of physical presence in the country: a person is considered resident if the period of stay in India is 182 days or more; or, if the person has more than INR1.5m (£14,798, $20,527, €17,274) domestic income and stays for 120 days or more.

Unlike a resident whose global income is taxed, NRIs have to pay tax on income earned in India but not on income earned outside India.

So, most NRIs plan their visit and duration of stay in India to meet the residency condition and avoid paying tax in India on what they earn outside India.

The programme allows people to purchase ready-to-move-in homes in the firm’s community villages and receive a 12-year residency visa as well as a business licence, as a result.

The firm currently offers two packages: property units going for AED292,000 or AED400,000 (£77,665, $108,900, €89,834). The former has already sold out, Al Hamra said.

The freehold properties will be 100% owned by the investor, and they could even apply for a five-year payment plan, with 20% of the total value upfront.

The majority of people interested in the scheme are expats in the UAE and Mena region, the firm said.

The programme also includes the opportunity to obtain a partner visa as well as offering a “flexi-desk” for entrepreneurs to conduct business from.

‘Customised solutions’

Benoy Kurien, group chief executive of Al Hamra, said: “We are delighted to see such positive response from the investors around the world who chose the emirate as their preferred destination for living and doing business.

“Ras Al Khaimah is the first emirate to be certified as safe by the World Travel & Tourism Council (WTTC), with record number of people taking advantage of living in less populated and more affordable communities, where they can be close to nature as well as benefit from world class amenities and facilities.

“Al Hamra’s products and initiatives have always been customer centric. The pandemic has presented us a new opportunity to evaluate our offerings and redesign our products to meet the changing demands of our customers. The ‘Live & Work’ initiative by Al Hamra is a great example of this exercise.”

Ramy Jallad, group chief executive of Ras Al Khaimah Economic Zone (Rakez), added: “Our focus is to make it a breeze for investors to set up and expand to the region by providing them with customised business solutions as well as helping them settle in Ras Al Khaimah with ease.

“With the ‘Live and Work’ product, we are able to achieve these and seamlessly plug them into the Ras Al Khaimah’s unique ecosystem which comprises of a thriving business community and high-standard way of living, all for a cost that is lower than other major business cities.

“We invite all global investors looking to take a dive into the booming markets across the region and experience first-hand what Rakez and Ras Al Khaimah has to offer.”

This follows Abu Dhabi’s introduction of a series of investor, student and entrepreneur visas to attract global talent to the emirate.

In its autumn 2020 budget, the federal government said the measure stems from the fact that “too often, the price of homes is out of reach for Canadians, in particular for those looking to buy their first home”.

“Speculative demand from foreign, non-resident investors contributes to unaffordable housing prices for many Canadians.

“To help make the housing market more secure and affordable for Canadians, the government is committed to ensuring that foreign, non-resident owners, who simply use Canada as a place to passively store their wealth in housing, pay their fair share.”

This is because the “unproductive use of domestic housing” owned by foreign non-residents is removing property from the domestic supply, the federal government added.

Unclear

It is still not clear how the tax will be calculated, what value ranges, if any, will be applied, as the details for the “national, tax-based measure” will be unveiled next year.

International law firm Dentons believes more will be explained in the government’s next budget, “expected sometime in 2021”.