Tax Law Update: Recent Cases on Domicile of Choice

January 11, 2024by Frontier Group

October 6, 2023

In the dynamic landscape of UK tax law, domicile remains a crucial factor, and recent cases shed light on the courts’ approach to determining domicile status. This update highlights key insights from a notable case, Strachan v HMRC (July 2023).

Strachan v HMRC: Challenging Domicile of Choice

Mr. Strachan’s case revolved around his claim to have abandoned his domicile of origin in England, establishing a domicile of choice in Massachusetts for tax purposes. He filed self-assessment tax returns (SATRs) for five tax years based on this claim, triggering HMRC enquiries. The central question was the time limit for investigation.

Key Points:

  1. Domicile of Choice Criteria: The court emphasized that a domicile of choice is established when an individual voluntarily fixes their ‘sole or chief residence’ in a jurisdiction with the intention of residing there indefinitely.
  2. Evidence Requirements: Acquiring a domicile of choice demands ‘clear, cogent, and compelling evidence.’ In Mr. Strachan’s case, having a home in Massachusetts was insufficient; the totality of relevant factors needed evaluation.
  3. Careful Consideration: Determining chief or principal residence requires a meticulous examination of all facts and circumstances.

Factors Against Mr. Strachan:

  1. Time Spent in London: Mr. Strachan spent the majority of each year in London, not Massachusetts.
  2. Work Importance: His paid work, even post-retirement, tied him to London due to its vital importance.
  3. Official Documents: Official documents listed his London address, including his US tax return, wills, and power of attorney.
  4. Charitable Donations: Significant donations to UK charities and active engagement in London’s social, cultural, and sporting life.

FTT’s Verdict:

The First-tier Tax Tribunal (FTT) ruled that Mr. Strachan retained his domicile in England, emphasizing his intent to move to Massachusetts only if unable to continue his London life. The FTT stressed the need for up-to-date advice in the face of significant life changes.

Deemed Domicile and Lessons Learned:

Mr. Strachan’s assumed domicile of choice led to deemed domicile, highlighting the importance of regular advice updates. While the FTT found him careless, HMRC failed to prove that tax loss would be avoided with timely advice, limiting the investigation window.

Takeaway: This case underscores the critical role professional advice plays in navigating changes impacting domicile status. Taxpayers are reminded to seek guidance, especially during significant life changes, to ensure accurate tax assessments.

Frontier Group