To Be or Not To Be ... Domiciled (Part 1)

The issues of domicile and residence are very significant to the UK taxman, particularly for Inheritance Tax (IHT), Income Tax (IT) and Capital Gains Tax (CGT) purposes. The first thing to know is how your status is defined by Her Majesty’s Revenue & Customs (HMRC).

Domicile

Any UK-domiciled individual is liable to IHT on worldwide assets but a non-domiciled individual is only liable on UK-situated assets. Expats need to be aware that achieving non-resident status has no bearing on domicile.

A ‘domicile of origin’ in UK law is normally inherited at birth from your father’s domicile. It can usually only be displaced by choosing a new domicile in adulthood (from age 16) through a conscious, permanent decision to totally abandon ties with the former country and acquire corresponding ties with a new country.

Remember, ‘permanent’ means for all time, with no view to a possible future change of mind. If, however, a domicile of choice is abandoned without a new domicile being chosen, the domicile of origin will automatically be revived. Domicile matters in every sense as it dictates how much of your wealth will be claimed by the HMRC when you die.

When you consider that the Chambers Dictionary definition of domicile is, “A person’s legally recognized place of residence”, expats must be aware that they can’t just claim a location because it suits their financial planning - whimsical declarations will certainly be contested by the HMRC. Richard Burton went to great lengths to establish domicile within the Canton of Switzerland in which he chose to live (in Switzerland you can’t choose to become domiciled in the actual country, you have to choose one of the Cantons or districts that make up the country). Unfortunately his dying wish to drape the Welsh flag on his coffin was photographed by the press who covered his funeral and an eagle-eyed tax inspector established that this constituted that he had failed to absolutely change his domicile of birth and his estate was sent a huge tax bill.

Changing a domicile

If you are looking to change your domicile, discuss the following points with a fully qualified professional advisers:

- UK domiciled UK residents are liable for tax on all their worldwide income.

- One of the most common domicile tests relates to origin. As stated above, this can be acquired from your father. If he did not regard the UK as his long-term home at the time of your birth, and you have evidence to substantiate such a claim, you could be judged as non-domicile.

- If you do not regard the UK as your permanent home you could be regarded as non-domiciled for tax purposes and as such will not be taxed on income from assets held outside the country.

- Non-domiciled people can transfer their savings to an offshore account and interest will not be taxed, so long as that interest is not brought into the UK.

Residence

The scope of UK income tax and a person’s liability to it depends also on the residence status of that individual. UK resident and domiciled individuals are liable to tax on income wherever it arises in the world, but UK non-residents (such as those qualifying expatriates) are liable to income tax only on income arising in the UK, whether or not they are domiciled.

A number of developments have emerged from the ongoing UK Government’s review of residence and domicile rules, which make it appear that HMRC is adopting a stricter attitude towards confirming expatriate status. In a recent tax case (HMRC vs. Shepherd) the ruling indicated that a new, and much more difficult, hurdle had to be cleared before the qualification for expatriate status was granted. The ruling indicated that in the absence of a “clear and distinct” break from the UK, any move abroad will be regarded as only temporary. It appears that, as a result of hold-ups with legislative change, the alternative course of action is a “re-interpretation” of current regulations.

The problem stems from the fact that the 90-day rule, which was previously assumed to confer non-resident status on individuals who spent 90 days per year or less in the UK, is not set down in statute, nor has it been the subject of much case law either. The real test as to whether someone has broken UK residence or not is a definite break from one’s normal mode of living. For example, if an airline pilot only spends 60 days a year in the UK because for the rest of the time he is either flying planes or on holiday abroad, it does not necessarily mean he will be non-UK resident. If, when he is in the UK, he always stays at the family home with his UK resident wife and children, socialises at the local pub, plays golf at the local course etc, then he will be treated as temporarily abroad, and thus remaining UK resident.

In fact it was a pilot was at the centre of the case mentioned above, HMRC vs. Shepherd, where the taxpayer was held to be UK-resident in spite of being present in the UK for less than 90 days a year. Central to the taxpayer’s argument was that he had set up home in October 1998 in Cyprus, intending to retire there when he finished work in April 2000. He ensured that from October 1998 onwards he spent less than 90 days a year in the UK. When in the UK, usually in preparation to captain long flights from Heathrow, he mostly stayed at the family home with his wife and son.

The commissioner, who had spent quite a while analysing the case law on residence, came to the conclusion that Mr. Shepherd had left the UK only through “occasional residence abroad”. This caused the taxpayer to fall within s334 of ICTA 1998, which states that the commonwealth citizen whose ordinary residence is in the UK will remain taxable in the UK if they left for occasional residence abroad. Several factors were important in leading to this conclusion, the mains ones being:

(i) He returned to the UK to carry out employment duties

(ii) He already had the residence in the UK, which he continue to use

(iii) He returned to the UK to attend the Boat Show and to celebrate the Millennium, which the commissioner ruled were not temporary purposes.

The third point may seem a bit bizarre, but the point was made that, as the taxpayer continued to return to the UK to attend these events, he was demonstrating that the UK was still his base.

To be continued…

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com.com

Snap Shots: by Harry Flashman

Four reasons for using Manual cameras

A few weeks ago, I looked at whether we have become too smart for our own good. Has technology taken over where good sense left off? I also mentioned that I use a mechanical camera with manual everything, focus, aperture and shutter settings. With modern cameras able to produce perfect photographs, why would I use a battered old Nikon, which is manual in operation? Am I too old to understand the new technology?

Not according to the blurb, as all I have to do is set the new cameras on A for Automatic and its little electronic chip brain does all the rest. I do not need to know “how” it does it. Leave it all to the electronic circuits.

I actually dealt with this about six months ago, but with the current correspondence and interest, it is worth repeating the message. There are many situations where your brains beat electronic brains. Believe me!

The first area is that of focussing. Unfortunately, modern auto-focus cameras can deliver more “out of focus” shots than manually focussed cameras. Why? Simply because the camera’s electronic brain has no idea what the subject of your photograph really is. The electronic gizmos sharply focus on a small spot right in the center of the viewfinder, and if that spot isn’t directly over your subject, you have just got yourself an out of focus photo. A classic example is the shot of a couple. There are two heads, one each side of the magic central spot, which is then making the camera focus on the background, several kilometres away! The two heads, close to the camera are out of focus.

The next good reason to go manual is when you wish to take an action shot. You want to “stop” the motion, so you know you will need a fast shutter speed. Takes one twist of the dial and I’ve got 1/2000th of a second. With the fancy camera, you generally have to push a button to get the “menu”, scroll down to find the “action man” logo and select “on”. I was many times quicker than you - and, what’s more, I got to select the shutter speed I wanted. You get what the camera decides you want! There is a big difference in stopping a speeding railway train compared to stopping Miss Lotus Blossom as she jogs past your front gate. Manually you can select that faster shutter speed from the complete range - even to the point of allowing a little blur to show dynamic movement. The electronic brain cannot do that, sorry!

Likewise when you want to make the romantic portrait by the window. The suffused light from the white curtain makes for a soft quality to the photograph. But does the electronic brain know this? No! It hasn’t a clue. You have gone through the menu and scrolling bit, and now you (or rather “it”) have a camera ready to go in the “portrait” mode, with a wide open aperture to give a short depth of field. Unfortunately, as you compose the shot, all it “sees” is a strong area of light and reduces the amount of light going to fall on the film by upping the shutter speed (because the aperture is fixed in the portrait mode). Guess what this does? It gives you a pale background and dark, dark, features on the subject, and if your subject has a dusky skin to begin with you have just turned it black.

No, what that shot needs is a human brain that can dictate to the manual camera the exposure details needed for the correct exposure for the face, allowing the background to “flare” mistily around the subject. Microchips be damned!

Another area where the electronic brain is clueless is when you want to take tricky shots using the flash. By setting the aperture and the flash power together, I can then, by fiddling around with the shutter speed, lighten or darken the background, even in daylight! Yes, by having total manual control I can use the flash at full power in the bright sun, something the electronic brain would consider a no-no!

For creativity and the sheer “joy” of photography, use your brain instead of the camera’s one. Yours is much better!

Modern Medicine: by Dr. Iain Corness, Consultant

Is your insurance cover enough?

Is your insurance cover enough? This is a perennial question. And a perennial headache for private hospitals and those who end up in them! And if you haven’t upgraded your cover recently, then you may be in for a nasty surprise. Unfortunately, everything, be that petrol, bread, or baby’s nappies has gone up in price in the past 12 months. If you haven’t upgraded there could be a shortfall, which you would have to find (or fund), not your insurance company.

At the outset, I must say I have never been one out of whom insurance agents grow fat. It has always been my feeling that there was something unbalanced about my attendant hangers on (AKA children) getting rich at my expense when I meet my final demise. When you really analyse it, you don’t even get to enjoy your own wake! No, if anyone is going to benefit from my paying insurance premiums every year, it is going to be me!

I have also been very lucky with my choice of careers. Being a medico does have advantages. If I couldn’t fix my skin rash or whatever, I could always ring a classmate who could (or should) be able to. Medications and drugs? Again no worries, just a quick raid of the samples cupboard in my surgery and I had everything I needed.

What about hospital in-patient insurance? I passed on that one too. After all, the only foreseeable problems that could stop me working were massive trauma following a road accident or suchlike, or a heart attack. In either case you don’t care where you are as long as there are wall to wall running doctors and plenty of pain killers. In Australia, the “free” public hospital system is fine for that.

So I blithely carried on through life insuranceless. I did spend one night in hospital with a broken leg 30 years ago, so as regards personal medical costs versus proposed insurance premiums, I was still miles in front.

And then I came to Thailand. Still I blithely carried on, after all, I was ten foot tall and bullet proof. Then a friend over here had a stroke and required hospitalisation. Said friend was four years younger than me and I was forced to review the ten foot bullet proof situation to find I was only five foot eleven and my kryptonite had expired. Thailand was a completely new ballgame.

Enquiries as to hospital and medical costs showed that they were considerably less than the equivalent in Oz, but, and here’s the big but, there’s no government system or sickness benefits to fall back on. Suddenly you are walking the tightrope and there’s no safety net to stop you hitting terra firma.

So I took out medical insurance. Still it was no gold plated cover. But it was enough to look after me if I needed hospitalisation, and that came sooner than I imagined. I had always subscribed to the “major trauma” theory, but two days of the galloping gutrot had me flat on my back with the IV tube being my only life-line to the world. We are only mortal - even us medico’s.

Do you have medical insurance? Perhaps it is time to chat to a reputable insurance agent! Yes, reliable insurance agents and reliable insurance companies do exist, but you need help through the minefield.

You also need help when it comes to filling out the application forms, in my opinion. And you also need to be 100 percent truthful. Yes, insurance companies will check on your records, and if it is found that you have been sparing with the truth over pre-existing conditions, expect a shock at settling up time at the cashier’s desk.

Remember too, that just because you have an insurance card does not automatically signify that ‘everything’ is covered. This is why private hospitals will ask you for a deposit on admission. If the insurance company later verify that you are indeed covered for that ailment or condition, then you’ll get it back, but you have to prove that you are covered, not the other way round!

And remember that cheap insurance premiums means you are only getting partial cover.

Learn to Live to Learn: with Andrew Watson

Changing the paradigm

I might apologise for bringing him in at this stage but George W. Bush seems to believe that his particular brand of “Freedom” will “prevail!” I’m not sure that I like his brand of freedom very much and I wonder sometimes what he would make of mission statements like the IBO’s or the United World Colleges, those paragons of educational virtue?

UWC Mission: “Through international education, shared experience and community service, United World Colleges enable young people to become responsible citizens, politically and environmentally aware, committed to the ideals of peace, justice, understanding and cooperation, and to the implementation of these ideals through action and personal example.”

For someone like George W. Bush, I can’t help thinking that he’s beyond change. Notwithstanding his apparent acceptance that ‘climate change’ might after all, be taking place, I just can’t imagine him saying the words, “Other people, with their differences, can also be right.” Anyway, what with Al Gore doing his Oscars climate thing, cynics might say that George W. is just protecting his ill-gotten electorate. Another inconvenient truth, perhaps?

In a bizarre kind of mitigation, another George, George Walker, is amongst many who note that people would rather not change. After all, the IBO and UWC mission statements ask their disciples difficult questions, not least among them is to consider, through critical and compassionate reflection, the possibility that what you once thought you knew, might not in fact, be true.

Bringing about what Thelin (1996) calls “a changed mentality” is easier said than done. IBO and UWC mission statements ask big questions, which might very well and sometimes necessarily involve nothing less than the intellectual transformation of the student and teacher, (Hayden & Thompson, 1995) as individuals and groups re-evaluate their position and their roles, rights and responsibilities to human kind. Hayden & Thompson talk about “the degree to which the individual steps out of a culture-bound process of thinking, learning and viewing the world.” That is the scale of paradigm change.

I have found that examining allegiance to football teams is a useful way to understand Hayden & Thompson’s point and perhaps enables us to learn more about our own and other cultures and the sometimes conflicting roles of emotion and rational thought in creating a sense of cultural identity.

For instance, in the United Kingdom, there are value laden social assumptions that an individual should support their ‘local’ team, although rarely is there any debate as to what the term ‘local’ means. Those who profess a love of a particular team who are either particularly successful or are ‘not local’, are derided.

Attempting to explain that different criteria for supporting a team other than ‘locality’ might exist, is like speaking a different language. I might, for example, choose to support a particular team on aesthetic grounds; ‘for the way they play the game’. Or I might favour them for the colour of their shirt, or for their ethical and political stance (Barcelona’s ‘UNICEF’ sponsorship being a good example).

The point is that until an individual arrives at the stage where they can re-examine and possibly change their deepest held allegiances, education potentially remains but a cursory gesture towards self-discovery and a conservative vehicle for sustaining the social, economic and cultural status quo of the nation state.

As Hofstede (1997) points out, in nations which score highly on his scale of what he calls ‘uncertainty avoidance’ (the desire to avoid uncertainty) and feel that “what is different, is dangerous”, changing can be particularly problematic. On the other hand, Hofstede also maintains that, “A sense of identity provides the feeling of security from which one can encounter other cultures with an open mind. The principle of surviving in a multicultural world is that one does not need to think, feel an act in the same way in order to agree on practical issues and to cooperate.”

It can be strongly argued that the 1994 UNESCO resolution which expects international education to be built on values emphasizing global interdependence, overlooks the strength of many people’s attachment to the country of their birth and drastically underestimates what is required in order to change people’s ways of thinking. Any such change needs to be politically led and the dynamics of change need to be inspired, planned and sustainable, or the rhetoric will sink back from whence it came.

What will power and sustain such an overwhelming change of paradigm? Perhaps the answer is in communications technology, the ‘third industrial revolution’ as Sprouster (1984) calls it, who then goes on to acknowledge the responsibility of leaders and management in ‘engineering’ the future. Deborah Stephens & Gary Heil in Maslow (1998 pXV) make the point that, “We speak the language of this new frontier but we have yet to embrace its meaning.” Or perhaps, it’s real potential.

It appears that ‘international education’ might be just another frontier of the twenty first century whose meaning and potential is not quite understood. There are so many different kinds of schools offering different strands and understandings of international education, but no global mechanism for uniting them towards either a common language or a common purpose.

George Walker (2002, in Quist, 2005) is in my view correct when he asserts that the creation and maintenance of such a mechanism, is the great challenge for the IBO. Yet for all its great work, the scale of their undertaking is such that it feels as if they are swimming alone in an ocean. Ideologically, they are voices in the wilderness and as an organ for ensuring quality in the delivery of their programmes, some would say that they are lost in space. With demand for their programmes growing at an ever increasing rate, dilution of the mission is a real risk. So many schools seem to leap towards the IB programmes blindly, without genuine understanding, seeing it more as a branding and marketing option, less a programme to fuel real change.

What particularly interests me is how the ‘big picture’ can be translated through the detail of day-to-day classroom instruction. I perceive a disparity between rhetoric and action, between theory and practice. But at least if I can identify weaknesses in interpretation or implementation of the mission statement, then I can also ask, “What can be done about it?”

As Bhaskar (1986, in Robson, 2002 p41) maintains, “If false understandings, and actions based on them, can be identified then this provides an impetus for change.” In the midst of an apparent plethora of platitudes, such as Hill’s (2002) “International education is education about the world for the world” there is a substantial sniff of empty rhetoric. As a form of indoctrination, one might ask if it is any different from Marxism’s ‘Dictatorship of the proletariat’ or the Christian bible’s praise of poverty, both of which can be interpreted as a desire for equality?

However, Hill adds substance to his style, when he lists the necessary conditions for such an education.
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Next week: Adding Substance to Style