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Definition of 'domiciled'


martyng
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Can any kind soul sort out what it means by being domiciled (in France or UK), specifically in relation to IHT/French succession laws.  My UK Financial Adviser reckons that, even though I and the OH are just about to retire permanently to France, we will not be considered to be domiciled in France and therefore will not be subject to French IHT, but rather to UK IHT.  Is he right?  We will of course be ordinarily resident for tax purposes - he agrees that - but to be subject to French IHT he says we will need to be considered domiciled to France.  He does not agree with Siddalls, with whom we had an initial meeting a few months back and who did not mention domicility (?) rather how French succession and inheritance laws would affect us.

Martyn   

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[quote user="martynandsue"]

Can any kind soul sort out what it means by being domiciled (in France or UK), specifically in relation to IHT/French succession laws.  My UK Financial Adviser reckons that, even though I and the OH are just about to retire permanently to France, we will not be considered to be domiciled in France and therefore will not be subject to French IHT, but rather to UK IHT.  Is he right?  We will of course be ordinarily resident for tax purposes - he agrees that - but to be subject to French IHT he says we will need to be considered domiciled to France.  He does not agree with Siddalls, with whom we had an initial meeting a few months back and who did not mention domicility (?) rather how French succession and inheritance laws would affect us.

Martyn   

[/quote]

Domicile =place of residence

So when the time comes (a long time yet we hope) if you are still living in France  French law.

But there are ways to put off  IHT till the passing away of the last member of the pair.

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[quote user="martynandsue"]

My UK Financial Adviser reckons that,.......

[/quote]

He's obviously unware about Article 3, paragraph 2 of the French Civil Code which stipulates that real property located in France, even if it belongs to foreigners, is subject to French law.  Other assets (bank accounts, securities, furniture and so forth) are considered as being located in the place of the deceased’s last residence - in your case, that's be France as well.

Siddalls know all about French succession law, but if you're in any doubt, consult the notaire who will be handling your house purchase.


 

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'Domicile' in France is more or less interchangeable with 'residence' as far as tax is concerned. However, things are considerably more complicated in Britain - HMRC publication IR20 explains it, available online here . France does not have the same concept of 'ordinary residence' as in UK; indeed it has quite different fiscal residence qualifications. Broadly speaking, if you retain ties in Britain (eg property or other investments, or dependent family members) you may not necessarily give up your UK domicile, even if you are living permanently elsewhere. So your adviser may be correct, but not knowing your full circumstances and not being qualified in taxation issues I could not possibly confirm this.

The effect of domicile on inheritance issues in UK is explained in the relevant section of the HMRC customer guide to inheritance tax, here.

But double taxation agreements can override these general guidelines - so you definitely need to contact the tax offices or another qualified professional if these issues are important to you.

 

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[quote user="martynandsue"]Can any kind soul sort out what it means by being domiciled (in France or UK), specifically in relation to IHT/French succession laws.  My UK Financial Adviser reckons that, even though I and the OH are just about to retire permanently to France, we will not be considered to be domiciled in France and therefore will not be subject to French IHT, but rather to UK IHT.  Is he right?  We will of course be ordinarily resident for tax purposes - he agrees that - but to be subject to French IHT he says we will need to be considered domiciled to France.  He does not agree with Siddalls, with whom we had an initial meeting a few months back and who did not mention domicility (?) rather how French succession and inheritance laws would affect us.[/quote]

I have looked into this issue and can only agree with Will and SD's comments, except that whereas Will is being somewhat generous towards your UK Financial Adviser by giving him the benefit of the doubt, I would not be quite so charitable - unless your circumstances are not actually as straightforward as they would at first appear. The UK definition of domicile is specific to the UK and works to the benefit of people who may be resident and/or ordinarily resident in the UK but because of their place of birth or parentage are not considered domiciled in the UK. France has no such distinction; if you have your main/habitual residence in France then you will become subject to French IHT rules on death, and these will in general cover your worldwide assets. You may still be "domiciled" in the UK as far as HMRC is concerned, but that will NOT concern the French tax authorities because they don not have the same definition. There may be (legal) things that you may be able to do in advance of a move to France that may result in an advantageous treatment compared with someone who has lived in France all their life, but for that you will definitely need expert advice - and I have to say that you will need to see a specialist because the average UK financial adviser could not be expected to know about such things.

Regards

Pickles

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My understanding is that  you will be subject to French inheritance tax and then UK inheritance tax, with any French tax being off set against UK tax.

This will apply to all UK ex pats unless they formally renounce their UK domicile and terminate all financial ties with the UK.

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[quote user="Pickles"][quote user="martynandsue"]Can any kind soul sort out what it means by being domiciled (in France or UK), specifically in relation to IHT/French succession laws.  My UK Financial Adviser reckons that, even though I and the OH are just about to retire permanently to France, we will not be considered to be domiciled in France and therefore will not be subject to French IHT, but rather to UK IHT.  Is he right?  We will of course be ordinarily resident for tax purposes - he agrees that - but to be subject to French IHT he says we will need to be considered domiciled to France.  He does not agree with Siddalls, with whom we had an initial meeting a few months back and who did not mention domicility (?) rather how French succession and inheritance laws would affect us.[/quote]

 There may be (legal) things that you may be able to do in advance of a move to France that may result in an advantageous treatment compared with someone who has lived in France all their life, but for that you will definitely need expert advice - and I have to say that you will need to see a specialist because the average UK financial adviser could not be expected to know about such things.

Regards
Pickles
[/quote]

Yes there are Legal things that can be done,

But not in U.K.

Here in France by a Notaire,and only for none French persons.

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What swift responses and succint comments - many thanks all.  V. concise summary thanks, Pickles.  I thought my IFA was being a bit insular. Our circumstances should be very straightforward (no offspring from previous marriages etc - just our two girls and a life time (well it feels that way!!) of monogamy), and we have already thought we might go down the line of a Communaute Universelle regime.  I will be going for further specialist advice i.e. the Siddalls type of advice rather than my IFAs preferred contact - who is a UK IHT specialist.  I look forward to any further comments. 

Martyn

 

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You could continue to have a liability for UK inheritance taxation as well as French inheritance taxation despite the fact that you have relocated permanently from the UK to France.

 

If for example you have been in France for less than 3 years prior to your death, it may be considered by the UK fiscal authorities that you retain UK domicile and thereby a liability for UK inheritance taxation on your worldwide assets.

 

To avoid problems make it clear that you have relocated permanently to France.

 

If however you retain UK assets you will be liable for UK inheritance taxation, despite being resident in France, however the DTT then comes into play.

 

Seek professional advice from someone that understands both taxation systems.

 

ams

 

 

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I have a question, when someone has just recommeded that you should make it clear that you have moved permanently to France and this also implies that this is preferencial, I must ask that since it would appear that French IHT allowances thresholds are significantly lower than the UK's therefore you will start to pay upwards of 20% above a base allowance of something like 49,000 euro after 15,000 euro and then this climbs depending on your relationship to the deceased and his or her permanent residency and how long they have lived in France, How does it benefit to "make it clear that you have permanently relocated to France"?

Don't forget that the estate pay IHT over a certain threshold , sorry a little out of touch but ie: £300,000 ish on the UK assets

Although I have asked questions myself in this forum on these issues it really can't be stressed enough that you must speak to an expert in both countries legalities and even then then ask more questions as I recently found out that a vital bit of information was never asked for ( how long has the donner / recipient lived in France) by an "expert" but after further investigation on my part to HMTO found this to be extremly relevant as of yet I do not know the outcome but it has given me grounds to put forward. It didn't occur to the "expert" to ask as his usual clientel were only ever in France. The benefit as I understand it that under 3 years residency in France the French tax office MAY deem the donner as non Resident. I appreciate this may not affect many people out there but its worth knowing.

As always take professional advice.

And final note to any of you with elderly parents that are here in France with you take advice sooner rather than later!!!!!

 

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I don't know what you are interpreting from my post, and I certainly did not feel that I was expressing my opinion or sense of logic mearly asking a question based on a statement that I had read from your post.

"To prevent any problems make it clear that you have permanently relocated to France"

No one likes having to pay Taxes especially IHT as the whole subject is usually about your own death one day or the fact you have lost someone.

The only  logic that I feal I have stressed is to seak very professional advice and when making  the preparations to move to France with elderly parents consider the inheritance tax implications and make any appropriate arrangements. But as always these sort of things are not at the forefront and perhaps rightly so, but if I have managed to highlight the fact that it is unfortunatly worth considering, then all the better , forewarned is forearmed

I don't see how it warrants a comment like one should move to another country without IH tax or maybe that was'nt the implication.

[B] go have one

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When applying for an IoM offshore bank account I was told that in "banking terms" - domiciled, means, where you are born! Only non UK domiciled persons living in the UK can apply for this particular high interest rate savings account. I was totally confused and still am. Luckily we were both born in Africa so no problems.

Postie

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When reading a post which is in response to a particular question it is always advisable to read the question first and then the response in that order. Your approach is selective. Do try reading the question and the response before respoding. In fact the last line of my response seems to be invisible to you.

 

ams

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[quote user="ams"]

When reading a post which is in response to a particular question it is always advisable to read the question first and then the response in that order. Your approach is selective. Do try reading the question and the response before respoding. In fact the last line of my response seems to be invisible to you.

 

ams

[/quote]

 

I may be thick and old but still trying, so please tell me which post you are answer?[8-)]

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Domicile and situ of assets at the time of death are the relevant factors for UK IHT purposes.  Your domicile (of origin) for UK tax purposes will be the domicile of your father.   It used to be the case that a women took her husband's domicile on marraige but that has now changed.  It is possible to change your domicile (domicile of choice) but as has been stated above it is not as simple as expressing an intention to move or, indeed, actually moving permanently to a new country.  It is based on your circumstances - i.e. whether or not you can have been considered to have severed all ties with your domicile of origin.  There is no statutory definition of 'domicile' so HMRC / the courts will look at a variety of facts when deciding on your domicile.  If you retain any ties with the UK e.g.:

  • have a residence in the UK
  • keep other assets in the UK e.g. cars, boat, plane etc

  • hold UK bank accounts
  • retain membership of UK clubs or societies

  • have business ties with the UK

  • have close / dependant family members in the UK

  • retain UK citizenship / a UK passport / driving licence

  • have a burial plot in the UK...or have expressed an intention to be buried in the UK
  • have a will that is written under UK law

  • you cannot speak, fluently, the language of your country of chosen domicile
or you have only lived in you country of domicile of choice for a short time,  then the UK tax authorities may consider you to continue to be domiciled in the UK even though you moved abroad before your death with the intention of living there permanently.

The burden of proof rests with the individual and HMRC will contest your domicile of choice on the basis of the above - particularly if your estate is of sufficient size to merit their interest.   

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[quote user="postie"]When applying for an IoM offshore bank account I was told that in "banking terms" - domiciled, means, where you are born!

[/quote]

Yes, but you have to put this in context. The IoM bank was presumably dealing with you as a UK resident, in which case the UK HMRC's concept and definition of domicile applies. And technically, the IoM bank was oversimplifying: HMRC would consider your default domicile to be that of your father in the absence of other overriding information - hence if you were born in Bahrain to British parents, HMRC would consider you to be UK domiciled. In such circumstances, if you never set foot in the UK nor had financial interests there then the fact that HMRC considers you to be UK domiciled will never impinge on your life. If you are in France, then what matters to the French tax authorities is whether your primary residence is in France, and they apply tests such as;

Where do you spend the majority of your time? (which is usually the defining issue)

Where is the centre of your financial interests?

etc.

There are some wrinkles in the French system which apply to people just after they have arrived in France which mean that their treatment wrt certain types of tax liability is different to that which applies to someone who has lived in France all their life, as has been pointed out, but basically the French Fisc considers domicile to equate to residence, and if you are in France then what the French Fisc thinks, matters!

(edited) I note that Scooby has already clarified much of the above - I'm a slow typer ....

 

Regards

Pickles

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Where this matter becomes relevant is if you are tax resident in France, but still have property and/or significant investments or financial interests in Britain. In this case, if you give up your UK domiciled status, then all your assets, worldwide, will be subject to French inheritance tax, which can be a bad move in financial terms (though might be advantageous for some).

If you retain UK domicile (particularly if you have dual residence status), and, most important, arrange things properly and legally, then it is possible to shelter your UK assets from the French tax. Though the French tax people may not always agree [;-)] as long as this is done within the provisions of the double taxation agreement you, or rather your heirs, will be OK. Of course, your French property will still be subject to French taxation and your UK assets will come under UK IHT. But this is often better than having the whole of your estate taxed in France.

In short, I agree with Scooby (and Pickles), with the proviso that it is rather difficult - if not impossible - to stop the French tax people applying French inheritance tax to houses and land situated in France. Which I am sure they said, but somebody who does not understand the double taxation arrangements might not realise. There are possible alternatives, including ownership of property through companies or trusts, but these can have negative tax implications in other respects, and trusts are not, as such, recognised in France. And of course, if you are UK domiciled, then you pay UK inheritance tax anyway - though under the double taxation agreement you should not be taxed twice. So there is no 'one size fits all' answer; it depends on so many variables, including the value of your estate, how many reserved heirs, etc etc.

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As the originator of this thread, regretfully I am still confused.  Having read all the comments, which have been very useful and thought provoking, I then read the HMRC documents (thanks Will for pointing me in that direction).  Although I appreciate HMRC rules apply only to UK situation, they state that ‘You are domiciled in the country where you have your permanent home. Domicile is different from nationality or residence.’  So with a permanent home in France, domicile is in France, n’est ce pas?  The French would agree with that surely, and I would be subject to French IHT laws.  But HMRC go on to say that ‘You can only have one domicile at any given time’, yet my domicile of origin is definitely in the UK, (born there, father etc.) and I will have dependants remaining in the UK, bank account etc.

Clear as mud!

But after all the legal discussion – with a fairly simple situation (married couple retiring permanently to France, sort succession so that assets go to other spouse, then equally to dependants) – financially in the long run is it going to be better to come under UK IHT rules or French?  (Or is that too simplistic a question?)

Martyn

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If your permanent home is in France and you have few, if any of the ties such as those mentioned by Scooby you can declare yourself to be French domiciled, in which case HMRC will not be interested. However, if the authorities in either country feel that you are attempting to evade taxation (rather than just avoid it, which is legal if done properly) they may investigate your affairs and deem the situation to be otherwise.

The problem is that French IHT is potentially very high, particularly for inheritors other than very close relatives, and the 'thresholds' are rather lower than in UK, and, indeed, in some cases don't exist at all. Whether your heirs would be better off or not if you were completely French domiciled depends on a number of factors, like the size of the estate, how much is 'fixed' property in either country, how many heirs, their relationship to you, etc etc. That's why I suggested your advisor, who obviously knows far more about your affairs and is better qualified than me, may be correct in so far as suggesting that you should think carefully about giving up UK domicile. I have to say that I have known Siddals and similar companies to offer poor - even totally incorrect - advice, so I wouldn't necessarily take what they say as being gospel truth, particularly if they don't have the complete picture.

Also the current HMRC IR20 booklet is an interim version, pending changes (although they shouldn't affect your situation) so there may well be inconsistencies. After all, as it says, there is no statutory UK legal definition of domicile, it merely follows what has been decided in various pieces of case law, so it is potentially an ever-changing concept.

This is the sort of question that can never be completely answered on a forum like this, but the discussion is of value if it suggests items you need to find out more about, or gives you questions to ask the real experts.

 

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