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HMRC opened an enquiry into an existing client’s domicile despite the fact that her tax returns had been completed fully

This is one of a number of cases where HMRC have been aggressive in attacking a client’s domicile status as demonstrated by recent Tribunal cases.

The challenge

The taxpayer was born in the UK to immigrant parents who always anticipated returning to their homeland. She grew up in the UK but had lived much of her adult life abroad. She had been issued with a previous ruling which accepted that she was not UK-domiciled (in the days when rulings were given on the basis of the information contained in a DOM1 form submitted to HMRC).

However, HMRC had a significant number of questions, including many relating to the client’s domicile of origin as well as those seeking to determine whether she had a domicile of choice in the UK – far greater detail than was required in the days when domicile rulings were issued by HMRC. HMRC argued on the basis of certain case law that the additional information they were gathering would allow them to make discovery assessments for several years. The HMRC view was that they were still in time to assess years which were only “in-date” if the taxpayer could be shown to be careless.

HMRC also asserted that there was nothing stopping them changing their view in relation to the previous ruling.

How did we help?

Our Tax Risk & Dispute Resolution team disputed the interpretation of case law which they claimed allowed them to change a previous decision if it related to domicile of origin, by pointing out that the case law in question related to domicile of choice. We used case law to demonstrate that HMRC were not entitled to the details of overseas income and gains before opining on the point of principle. (Note: the decision in the case law we used has now been overturned in the Court of Appeal).

We answered the questions which we considered relevant to the taxpayer’s current domicile but rebutted the suggestion that they should be able to disturb the client’s domicile of origin. We suggested that HMRC should only consider whether there had been any change in the taxpayer’s long-term intentions for the year of the enquiry and later periods.

The outcome

HMRC accepted that we would not provide the detailed figures for offshore income and gains until the point of principle was decided.

It was agreed with HMRC that the client’s non-UK domicile of origin should stand, and that the previous ruling prevented them revisiting years prior to that ruling. We also agreed that the only issue was whether the taxpayer’s long-term intentions had changed so that she expected to remain in the UK permanently or indefinitely, and if so when that decision had been made.

Although the client’s circumstances had changed over the years, we established that she had started to consider staying in the UK during the year into which HMRC was enquiring. The taxpayer therefore asked us to conclude the investigation with HMRC on the basis that she would pay tax due to the fact that she became UK domiciled at the beginning of that year. We convinced HMRC that a decision of this kind is not made suddenly and that the conclusion is often not really registered for some months. We therefore concluded that there was no carelessness involved and convinced HMRC that no penalty should be paid in relation to the additional tax due.

Would you like to know more?

If you would like to learn more about incorrect tax returns and overseas income, please get in touch with your usual Blick Rothenberg contact or a member of our Tax Risk & Dispute Resolution team listed on this page.

You can also visit our Tax Risk & Dispute Resolution page for more information.

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Fiona Fernie
Fiona Fernie
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