AML: HMRC flexes enforcement muscle to the tune of £7.8 million
In the Oxford Dictionary, ‘domicile’ is defined as “the country that a person treats as their permanent home, or lives in and has a substantial connection with”. This might seem pretty straightforward at first thought. Most people faced with the above definition would be able to state their domicile with relative confidence. However the law in this area is far from straightforward, and as our customs and values change at an ever increasing pace within modern society, the question is to what extent the law is able to keep up.
Domicile is a common law concept that the courts use to connect every person with a particular legal system by which that individual’s legal relationships may be regulated. In particular, it is relevant to personal law, such as marriage, divorce, wills and succession on death (in relation to moveable assets). It has also been imported into the UK tax legislation to determine the extent of an individual's liability to income tax, capital gains tax and inheritance tax. It is therefore a key concept in English law. There are different types of domicile; domicile of origin, domicile of dependency and domicile of choice. This blog will focus on domicile of origin and consider some of the particular issues it raises for the modern family, which can come in many different shapes and sizes.
Domicile of origin
Everyone has a domicile of origin at birth. An individual’s domicile of origin is generally acquired from their father at the time of their birth if their parents were married at that time. A domicile of origin has tenacity; it sticks with a person throughout their life. Although a domicile of origin can never be extinguished, it can be displaced by the acquisition of a domicile of dependency or a domicile of choice. However, a domicile of origin lies dormant and can revive when a domicile of dependency or choice is lost.
The present law on domicile of origin is as follows:
Children born to married parents
If a child born to married parents is born during his father's lifetime (even if his parents are separated by the time the child is born), the child's domicile of origin is taken to be the father's domicile at the time of the child's birth.
Children born to unmarried parents and born using a sperm donor
If a child is born to unmarried parents (even if they subsequently marry), parents who have divorced before birth, or if the child's father dies before the birth, then the child takes the domicile of the mother at the time of the child's birth. This would also generally be the case where a mother uses a sperm donation from someone other than her husband.
If a child is adopted, the child acquires a new domicile of origin and is treated in law as born to his adoptive parents in wedlock. Therefore, the child's domicile is determined in the same way as any other legitimate child, that is, the child takes the adoptive father's domicile (as at the date of adoption) as the domicile of origin. This is of course assuming that there is an adoptive father.
A ‘foundling’ is a somewhat archaic term for an infant or small child found abandoned with no known parent or guardian. If the child is a foundling, the child's domicile of origin is thought to be the place where the child was found.
Children born to heterosexual parents using a surrogate
Where a child is born using a surrogate and the commissioning parents obtain a parental order (which is available when, among other criteria, at least one of the commissioning couple is genetically linked to the child i.e. one of them is either the egg or sperm provider), the couple are treated as the legal parents of the child and the surrogate’s legal parentage is extinguished. A parental order can only be obtained by a husband and wife, civil partners, or two persons who are living as partners in an enduring family relationship. When a parental order is made in respect of a child, the child is treated in law as having been born to the applicants in wedlock. Where the applicants are a heterosexual couple, this means that the child will adopt the domicile of origin of the father. However, the position is unclear where the parental order is made in favour of a same-sex couple. For more on surrogacy, parental orders and domicile issues, see Family Law blog “the importance of domicile over residence in Parental Order applications”.
Same sex parents
The position becomes uncertain where the child is of a same-sex couple. The common law rules on domicile are based on “traditional” relationships, that is, a heterosexual couple (married or unmarried) having a child together. It is only recently that it has become more widely accepted, in Western European society in particular, for two men or two women to have a child together. Unsurprisingly, given this recent change in attitudes, much of the law on domicile has yet to catch up with the alternative dynamics in familial relationships, partly because the courts have not had to deal with these issues yet.
Some interesting questions arise where a child is born to two parents of the same sex. For example, from whom does the child take their domicile of origin? If a child was born using gametes from one parent, should it be that parent from whom the child takes their domicile? In the case of a child who has been adopted, will the child’s domicile of origin depend on whether the fathers or mothers share a common domicile? If so, it may be straightforward to develop a rule that the child takes the domicile of both parents. Such a rule would also get around the difficulty created by the current rule, particularly where the child has two mothers, which provides generally that a child takes his father’s domicile.
But what about a child whose fathers or mothers have differing domiciles? Where there are two fathers or mothers of differing domicile, from which father or mother does the child acquire their domicile? Perhaps, as suggested above it should be the parent whose gametes are used. However, this would not solve the question where neither parents provide the gametes and the child is adopted. There are many more questions and the position is far from clear.
In 1987 the Law Commission in conjunction with the Scottish Law Commission considered the law of domicile and made proposals for far-reaching reforms. It highlighted, amongst other things, that the current law discriminates against legitimate and illegitimate children and between their fathers and mothers. It proposed that the concept of domicile of origin should be discarded and put forward alternative rules for determining the domicile of a child, in particular one which looks at the country of closest connection at the time of the child’s birth. In the case of same-sex parents this would remove the need to consider the gender of the parents.
Scotland has gone some way in addressing these issues by virtue of section 22 of the Family Law (Scotland) Act 2006, which states that where the parents of a child are domiciled in the same country as each other, and the child has a home with either or both of them, the child shall be domiciled in the same country as its parents. Where this is not the case (i.e. where the child’s parents have differing domiciles), then the child’s domicile shall be the country with which he has the closest connection at the time of his birth. No reference is made to the gender of the child’s parents. The idea of “closest connection” is a factual rather than legal question, looking at the circumstances of an individual’s life rather than relying on strict legal rules. In most cases it should provide certainty as to a child’s domicile by looking at facts such as where the child is resident, his nationality and where he goes to school.
However, such a rule will not be satisfactory in all cases and it could also have some interesting tax consequences. For example, if a child is born in Italy to parents who were married at the time of his birth, his father is domiciled in Italy and mother domiciled in Scotland, they move to Scotland when the child is a few months old and stay in Scotland for around 10 years, intending to return to Italy once the child has completed his education. His parents are wealthy and they open a bank account for him in Jersey. Under Scottish law it is likely that the child would be domiciled in Scotland as he is most closely connected to Scotland. If he dies while domiciled there, his worldwide estate, including the bank account in Jersey will be subject to UK inheritance tax. Whereas if he died under the common law rules, he would have been domiciled in Italy and therefore the bank account in Jersey would have been excluded property and not subject to inheritance tax.
Particularly for those children whose parents have complex lives, travel and move frequently, a more strict legal approach, as we have now for domicile of origin, has its advantages. Certainty of domicile of origin is important as it is something which will remain with the child throughout their lifetime and, especially from a UK tax perspective, can have significant consequences.
One option may be to have a rule (applicable to heterosexual and homosexual couples) which relies on a modified version of the current law and which takes into account the circumstances of the child’s parents’ life. For example, where a child of a same-sex couple is the subject of a parental or adoption order and his parents have the same domicile, the child’s domicile of origin will be acquired from both his parents, regardless of the gender of his parents. Where the child’s parents have differing domiciles at the time of the parental or adoption order, his domicile of origin will be the country where the child’s parents (as opposed to the child) are most closely connected at the time of the child’s birth. Having a test based on where the parents are more closely connected provides a result which is more akin to current domicile law, that is, the child acquires his domicile from his parents. Whereas having a test based on where the child is most closely connected may not necessarily be where his parents are most closely connected and give rise to unintended consequences, as with the example above.
To give an example based on the above option, Philip and Hans are married. Philip is domiciled in England and Hans is domiciled in the Netherlands. They both live in the Netherlands. They decide to move to London for work but intend to leave in 5 years’ time and return to the Netherlands. During this time they return regularly to the Netherlands, stay at their home there and visit family and friends there. While in England they have a child, Anna, through a surrogate and obtain a parental order. As Philip and Hans have differing domiciles (putting aside the argument that Philip may have acquired a domicile of choice in the Netherlands), we should look at where Philip and Hans are most closely connected at the time of Anna’s birth to determine her domicile. Given the strength of their connections to the Netherlands and their intention to leave England in 5 years’ time, the facts point to Anna having a Dutch domicile of origin.
Domicile reform has been on the government agenda recently, in particular with changes to the concept of deemed domicile for tax purposes. However, reform of the current common law rules to bring domicile into the modern age does not appear to be a priority. Perhaps it is time the government revisited the 1987 Law Commission report or perhaps, as is the advantage of our common law system, the courts will provide the reform.
Should you have any questions about the issues raised in this blog, please contact Katie Allard or a member of our private client team. You may also be interested in reading our other blogs relating to our private client work.
Skip to content Home About Us Insights Services Contact Accessibility