Coller v HMRC: Actions Speak Louder Than Words - Capital Gains Tax

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While the concept of acquiring a domicile (deemed) after15 tax years of UK residence is familiar to many, it is vital thatcommon law domicile is not overlooked.

The recent judgement (all 57 pages of it) of the First-Tier TaxTribunal delivered by Tribunal Judge Nigel Popplewell in JeremyColler v HMRC ¹ provides an excellent reminder.Briefly, the facts were that Mr Coller claimed, for the purposes ofclaiming the remittance basis of taxation, that he was notdomiciled in the UK ² by virtue of his parentage. Alldomicile cases are, by their very nature, fact specific but theTribunal Judge went above and beyond to provide a thoroughexposition of the law of domicile in his application to MrColler's life history and addressed a number of issues whichoften arise in such cases.

What is domicile?

The common law concept of domicile stands alone fromcitizenship, tax residence or habitual residence. In very generalterms, domicile can be described as an individual's permanenthome.

Of course, domicile means different things to different peoplein different locations. For example, in French,"domicile" translates as "home" (which is itsnatural meaning in English, too and one reason why it is open tobeing misunderstood) and so it is understandable that the UK'sconcept of domicile could easily become blurred with tax residence.This, coupled with the fact that domicile is not a concept thatexists under many jurisdictions, can mean that uninitiated foreignadvisors are often not alive to its complexities and risks.

Back in the UK, in many cases, an individual ³ isdomiciled where their father's domicile was at the time oftheir birth. This is referred to as an individual's'domicile of origin.'

There are two further types of domicile – a 'domicileof choice' and 'domicile of dependency.' A domicile ofchoice can be acquired where an individual has actual residence ina new jurisdiction and has an intention to live there permanentlyor indefinitely. Once acquired (and crucial for the case inquestion), a domicile of choice will displace a domicile oforigin.

A domicile of dependency applies only to unmarried childrenunder the age of 16. In this instance, an individual will have adomicile which generally follows that of their father until thechild reaches 16.

The common law concept of domicile should not be confused withthe statutory concept of deemed domicile. In 2015, thegeneral election brought about tax reforms which were implementedfrom 6 April 2017. From this point, an individual was treated asdeemed domiciled when they have been UK resident for at least 15 ofthe 20 tax years ⁴. What is vital to bear in mindhowever, is that a common law domicile of choice can be acquiredwell before 15 years have elapsed, and this can have significantinheritance tax (and other) implications.

In the absence of a statutory test for domicile, landmarkdomicile cases such as this are vital in demonstrating topractitioners how HMRC might assess domicile.

Why does domicile matter?

An individual's domicile can be a crucial factor in a rangeof legal and tax issues, such as whether:

the favourable remittance basis of taxation is available forincome and capital gains tax purposes;
an estate is liable to UK inheritance tax on worldwide assets(because the deceased was UK domiciled) rather than just on UKsitus assets;
the law of the individual's domicile or the law of thesitus of an asset applies for succession purposes;
a claim under the Inheritance (Provision for Family andDependants) Act 1975 can be made, as the legislation only appliesto estates where the deceased was UK domiciled;
an individual can bring divorce proceedings in the UK; and
the helpful rules which protect foreign income and gainsarising in certain trusts, where the settlor has become deemeddomiciled apply, provided they are not UK domiciled under thecommon law.

And it cannot be ignored that domicile and the UK'sfavourable "non-dom" tax regime has been the subject ofmuch media coverage following significant political limelight.

The case

Given the increasing number of domicile challenges by HMRC, thisdecision is a salient reminder, if one were needed, thatindividuals should apply more scrutiny to their circumstances. Theproverb "Actions speak louder than words" clearly appliesin domicile cases, with close examination by the Tribunal of thelives of the appellant and both of his parents. Although unusual inthat most domicile decisions relate to a deceased taxpayer, thesame principles apply and were summarised by Mummery LJ inCyganik v Algulian [2006] EWCA Civ 129: "The courtmust look back at the whole of the deceased's life, at what hehad done with his life, at what life had done to him and at whatwere his inferred intentions in order to decide whether he hadacquired a domicile of choice in England by the date of his death.Soren Kierkegaard's aphorism that "Life must be livedforwards, but can only be understood backwards" resonates inthe biographical data of domicile disputes."

The facts of the case could have been set as a law school examquestion as the central issues which the Tribunal had to considerincluded (unusually) a domicile of dependency that changed not onlydue to the disputed acquisition of a domicile of choice by theappellant's father, but also due to the death of theappellant's father before the appellant attained the age of 16.This compelled consideration of his mother's own disputeddomicile of choice, not to mention the total absence of tiesbetween the appellant and his claimed domicile of origin.Furthermore, the circumstances in which both parents arrived in theUK raised interesting points.

In this case the appellant's father fled from Austria toEngland to escape the Nazi persecution of Jews. The courts havedetermined ⁵ that if a person takes up residence inanother county as a political refugee, he does not acquire domicilein that country unless he forms the intention of residing therepermanently or for an unlimited time. Counsel for the appellant MrColler, argued (unsuccessfully) that "It is not enough forHMRC to prove facts which could be consistent with the intention ornot having the intention was simply not having made up one'smind. The domicile of origin endures unless and until HMRCsatisfies us that there was the necessary intention. And thatintention must be a positive settled determination of intent. Itmust be more than simply carrying on living where you are and notthinking about it".

Rule 14, stated in Dicey, Morris & Collins on the Conflictof Laws ⁶ (the leading authority for those who advise inthis area), provides:

Rule 14

"... in determining whether a person intends to residepermanently or indefinitely in a country the court may have regardto:

the motive for which residence was taken up there;
the fact that the residence was not freely chosen;
the fact that the residence was precarious."

Unfortunately for Mr Coller, it was of importance to theTribunal that his father had no wish to return to the place of hisbirth and his domicile of origin; indeed the judge believed it wasclear that he intended to abandon his domicile of origin. Althoughit was acknowledged that, whilst it is not possible, legally, toabandon a domicile of origin without having acquired an alternativedomicile of choice, in practical, nonlegal terms, the Tribunalfound that this is what the appellant's father did.

The commentary in Dicey goes on to provide:

"A person who leaves a country as a political refugee...hasa special motive for leaving it, but they may have no specialmotive for entering any other particular country, nor is residencein another country in any sense enforced. The question which causesmore difficulty in cases of this kind is whether the fugitiveintends to abandon a domicile in the first country: if they do, theacquisition of a new domicile in the second country will readily beassumed.... If a political refugee intends to return to the countryfrom which they fled as soon as the political situation changes,they retain a domicile there unless the desired political change isso improbable that the intention is discounted and treated asmerely an exile's longing for the native land; but if theintention is not to return to that country even when the politicalsituation has changed, a domicile of choice can be acquired in thecountry of refuge. ⁷"

The judgement

Less than half way through the judgement, the Tribunal concluded"To our mind it is clear that John [Mr Coller's father]had intended to abandon his domicile of origin in Austria. Heachieved this by acquiring a domicile of choice in England. Hispurported intention to retire to France was of the "vaguevariety" ⁸ He had become deeply settled in Englandwith which he had a singular and distinctive relationship, by thedate of Jeremy's birth in 1958, and certainly by the date ofhis own death in 1968. HMRC's evidence that this is the case isclear and compelling. It is our view, and we find as a fact, by wayof an inference based on the primary facts, that by both dates Johnhad made up his mind consistent with his permanent home and way oflife in England, to live in England permanently and indefinitely.He had, therefore, an English domicile of choice by the date ofJeremy's birth in 1958 and by the date of his own death in1968".

Aside from providing a comprehensive review of the relevant caselaw, the decision is helpful aide memoire both as to the standardand the burden of proof.

As to the standard of proof, the Tribunal cited the judgement ofScarman J in Re Fuld ⁹

"what is the standard of proof: is it to be proved beyondreasonable doubt or upon a balance of probabilities, or does thestandard vary according to whether one seeks to establishabandonment of a domicile of origin or merely a switch from onedomicile of choice to another? ... The formula of proof beyondreasonable doubt is not frequently used in probate cases, and I donot propose to give it currency. It is enough that the authoritiesemphasise that the conscience of the court ....must be satisfied bythe evidence. The weight to be attached to evidence, the inferencesto be drawn, the facts justifying the exclusion of doubt and theexpression of satisfaction, will vary according to the nature ofthe case. Two things are clear – first, that unless thejudicial conscience is satisfied by evidence of change, thedomicile of origin persists: and secondly, that the acquisition ofa domicile of choice is a serious matter not to be lightly inferredfrom slight indications or casual words".

The burden of proving a change of domicile rests on the partywho alleges it ¹⁰ which in this case was HMRC. It wasnot for the appellant to show that his father had either notabandoned his domicile of origin or had acquire a domicile ofchoice in a jurisdiction other than England, it was for HMRC toprove that his father (or mother, following her husband'sdeath) had acquired a domicile of choice in England such that theappellant had an English domicile of dependency.

The Tribunal identified four key issues to be determined, whichare set out below:

Whether by the date of the appellant's birth on 17 May1958, had his father acquired an English domicile of choice, suchthat appellant's domicile of origin was England
Whether the appellant's father had acquired an Englishdomicile of choice by 31 August 1968, the date on which he passedaway, such that Jeremy had an English domicile of dependency, whichbecame an English domicile of choice, on his reaching majority on17 May 1974
Whether, if the appellant's father had not obtained anEnglish domicile of choice by the time of his death, had his motheracquired an English domicile of choice after her husband'sdeath such that the appellant acquired an English domicile ofdependency, which became an English domicile of choice on hisreaching majority on 17 May 1974
Whether, if the appellant's Austrian domicile of origin(acquired if his father's domicile had had not changed)remained unchanged during his minority and after he had turned 16,he had acquired an English domicile of choice on or before 5 April2012.

But for the appeal to be dismissed, HMRC only had to succeed inproving a change in domicile in relation to one of the four.However the bonus for practitioner is that, in for a penny, in fora pound, the Tribunal considered every issue and the judgementprovides a consummate summary of the significant body of case lawwhich determines the English common law rules on domicile.

The decision reaffirms that both pipe dreams and statements ofintention are of little evidential value particularly when they areinconsistent with the actions (or inactions) of the individualpurporting to rely on them.

Footnotes

1. [2023] UKFTT 212 (TC)

Coller v HMRC: Actions Speak Louder Than Words - Capital Gains Tax - UK (2023)