International Tax, Services for Asian Investors
Tribunal case Shah Vs. HMRC: What we can learn about domicile
Recently a very important case was decided in the First Tier Tribunal (“FTT”) regarding an individual’s domicile. If you are considered to be non-domiciled, this case highlights the importance of reviewing one’s domicile position and being able to put together a pack of evidence to support one’s domicile status in case of any potential HMRC enquiries.
The recent case, Shah v HMRC, was in respect of his domicile status and whether his worldwide estate was subject to UK Inheritance Tax (IHT) due to him acquiring a domicile of choice in the UK. Mr Shah was originally from what was British India and had spent considerable time in the UK since arriving in the 1970’s. The FTT pointed to several strong links that Mr Shah had to the UK and the relatively weaker links to India despite the appellant’s claims.
The FTT eventually sided with HMRC and ruled that Mr Shah had acquired a domicile of choice in the UK before his death (rather than retaining his domicile of origin in India) because on the evidence presented, he had no significant connections to India and any intention to return to India was not clearly demonstrated.
This case serves as a reminder to ensure factual statements demonstrating links and intention carry as much weight as collating evidence to corroborate them.
Many points were brought up by both HMRC and the defendant, but the key facts used in the case are as follows:
- Mr Shah was born in Karachi in 1929 when it was part of British India. His father was from Gujarat (now part of modern India) and moved to Karachi as a child.
- Mr Shah relocated to Tanzania as an infant with his parents before moving back to India for higher education in 1942 to 1951.
- In 1954, Mr Shah moved to the UK to study pharmacy and graduated in 1957 later returning to Tanzania, citing family reasons for his departure.
- Mr Shah got married in India in 1960. His wife was born in Gujarat, India. They had a daughter and a son.
- Mr Shah acquired British citizenship in 1961 when Tanzania became independent from the UK, but he had to give up his Indian citizenship as India didn’t permit dual citizenship. His wife retained her Indian citizenship until obtaining British citizenship in the 1980’s.
- Mr Shah lived in Tanzania until 1973, he moved to the UK in pursuit of better job opportunities and his wife and children followed.
- Mr Shah worked as a pharmacist in the UK, eventually owning a pharmacy business and a property.
- Mr Shah made two wills, one under UK law for UK assets and one under Indian law for non-UK assets. He registered as an Overseas Citizen of India in 2014. Mr Shah passed away in June 2016.
- Mr Shah lived in the UK for 43 years until his death.
- Mr Shah made two trips to India after moving to the UK in the early 1970’s: once in 1992 when he spent two weeks once in 2010 for approximately three weeks.
Reminder of key points when considering domicile:
The key points we need to consider when we ascertain one’s domicile are generally:
- Family ties, i.e. where do the rest of your family live
- Where you have lived since birth
- Where your economic interests are
- Detailed plans you have made in terms of retirement and financial arrangements
- Cultural ties, i.e. do you retain customs and traditions of your homeland?
- Written intentions
- Accommodation available to you
Whilst the above are certain facts, HMRC contested Mr Shah’s claim to be non-UK domiciled on the basis that much of his life was here in the UK and had such strong connections here. There was also little documentary proof available for consideration. A DOM1 form, which was a form HMRC previously used to ascertain an individual’s domicile but is no longer in use, was prepared some time before his passing however this was never provided to HMRC and in the end, Tribunal found that its content was not suitable evidence.
For example, the form stated that Mr Shah had accommodation available to him in India, which in fact was an open-ended offer to stay at his brother in law’s house in Mumbai. There was no specific room set aside and this could be interpreted as an offer of hospitality rather than long term accommodation available.
There were also statements that Mr Shah had always intended to retire to India and be with his mother’s family, however Mr Shah had no financial arrangements made to live in India and there was no evidence to having close links to his family in India. HMRC contested that there were several occasions where Mr Shah could have gone to live in India – he could have retired upon the sale of his business, retirement from work and following the passing of his daughter and wife. One of the delays of Mr Shah returning to India to live was to be close to his grandchildren in the UK which demonstrated even stronger links of attachment to the UK.
The Tribunal also commented that Mr Shah had no evidence of any cultural ties and links to India.
The FTT ultimately concluded that at some point after his arrival in the UK back in 1973, he had acquired a domicile of choice here in the UK and thus his worldwide estate which included several non-UK assets and investments was subject to UK IHT.
Mr Shah had settled and intended to remain in England permanently and taking all of the evidence into account had at most, only a vague and floating idea of moving to India at some point.
Overall, the Tribunal considered that the evidence showed that what was important over the course of Mr Shah’s life was his close family which remained in the UK.
Although HMRC had not identified a single event or moment in Mr Shah’s life at which he might have made his decision to remain in England indefinitely, this was not a fundamental weakness: “an intention to remain does not have to be a Damascene moment and can develop over a relatively long period of time”.
Cases like these regarding an individual’s domicile are rare but they prove important in showing just how crucial it is to ensure you revisit your domicile status regularly which can be evidenced and written statements maintained to support your status.
A vague intention does not on its own demonstrate an intention to reside in another country.
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