18 June 2020

Many practitioners in recent years have seen HMRC increasing both the number of domicile enquiries and the ferocity with which they are led. Such enquiries are often targeted towards taxpayers who have been resident in the UK for a number of years, but assert that they have maintained significant ties with another jurisdiction and have retained a non-UK domicile.

The recent case of Henkes v HMRC appears to have strengthened HMRC’s position in relation to the domicile status of long-term UK residents, but other taxpayers may be able to distinguish their situations from that of Mr Henkes.


The concept of domicile under English law is a peculiar one, which is often difficult to assess and even more difficult to evidence. There is no statutory test to establish where a person is domiciled and so, in essence, it is a subjective test of where a person is most closely connected. An individual can, in theory, live in the UK for any number of years without becoming UK domiciled, provided that they do not intend to remain here until the end of their days. A domicile of choice can only be acquired in the UK if the individual:

  1. has their only or chief residence in the UK; and
  2. has formed the intention to remain in the UK permanently or indefinitely.

In order to establish domicile, it is necessary to consider every facet of the individual’s life, from where their family is based and where their business interests are, to where they wish to be buried, where they have political affiliations and the countries for which they hold a passport. None of these factors is in itself conclusive and instead informs the wider picture.

There is a clear reason why HMRC is so keen to establish that an individual is UK domiciled. A non-UK domiciled person is only taxable to inheritance tax on their UK-situs assets and can claim the remittance basis of taxation until they have been UK resident for 15 out of the previous 20 tax years (and therefore not be subject to UK taxation in relation to non-UK income and gains which are kept outside of the UK). Once UK domiciled however, the majority of fiscal protections fall away. The individual will then be subject to inheritance tax worldwide, as well as worldwide income tax and capital gains tax.

In order to assess domicile, HMRC can issue information notices, following receipt of which the taxpayer must answer wide-ranging questions and provide extensive evidence as to their non-UK affairs. Supplying such information can be extremely time-consuming, costly and intrusive for the taxpayer, and HMRC’s enquiries can last for several years without conclusion. It is therefore possible for the taxpayer to apply to the First Tier Tribunal ('the FTT') to order HMRC to issue a closure notice (either in full, or a partial closure notice), if it can be argued that all information requested has been provided and yet HMRC continue to ask further questions without good reason, or if HMRC have taken an unreasonable amount of time to come to a decision.

Henkes v HMRC [2020] UKFTT 7645

Mr Henkes had lived in the UK since 1967 (except for two short periods of non-residence during which he maintained a UK home) and had strong family connections to the UK. He and his wife also had a home in Spain, where they visited mainly with friends or family members, and often over Christmas and Easter and during the month of August. It was accepted that Mr Henkes had a non-UK domicile of origin, however he claimed to continue to be non-UK domiciled on the basis that he intended to leave the UK upon retirement. As such, he claimed the remittance basis of taxation each year.

HMRC disputed this and asserted that Mr Henkes had acquired a domicile of choice in the UK. This was largely on the basis of the strength of Mr Henkes’ ties to the UK, the fact that he spent the majority of his time at his UK property and tended to visit his Spanish property over the traditional vacation periods and, although Mr Henkes may choose to leave the UK when he retires, he in fact has no intention of retiring and continues to seek further work opportunities, regardless of his advancing years. On this basis, HMRC had raised an enquiry into Mr Henkes’ tax returns for 2014/2015 and 2015/2016 as, if he had indeed acquired a UK domicile of choice, the remittance basis of taxation would not have been available to him in these years.

Mr Henkes asked for the FTT to consider (1) his application for an order directing HMRC to issue a closure notice in relation to HMRC’s enquiries and (2) his appeal against the information notice issued by HMRC.

The FTT considered that there were two procedural questions which it must also consider:

  1. whether the FTT was entitled, as a matter of jurisdiction, to determine Mr Henkes’ domicile status for the relevant years (the 'jurisdictional question'); and
  2. if so entitled, whether this discretion should be exercised in order to determine Mr Henkes’ domicile status (the 'case management question').

The FTT decided that it was entitled to determine Mr Henkes’ domicile status and concluded that a question of law could be determined as a preliminary issue in the case (rather than as part of a substantive appeal against HMRC’s eventual decision). It was the view of the FTT that the issue of Mr Henkes’ domicile was, to all intents and purposes, the sole issue to be decided as the necessity for the application for a closure notice and the appeal against the information notice entirely turned on it. Further, it decided that the FTT should exercise its discretion to determine Mr Henkes’ domicile status and any such determination of Mr Henkes’ domicile status would be binding on both Mr Henkes and HMRC.

Unfortunately for Mr Henkes, having come to the conclusion that it was entitled to determine his domicile status and any determination would be binding, the FTT went on to find that Mr Henkes had acquired a UK domicile. Although there was evidence pointing both ways, the FTT concluded that it was more likely than not that Mr Henkes’ main or chief residence was in the UK, and not his Spanish property. Further, the FTT considered the length of time which Mr Henkes had lived in the UK, as well as his family ties, the fact that he had no meaningful attachment to any other jurisdiction, and the lack of clarity as to if and when Mr Henkes may ever retire and, if he were to do so, whether it is certain that he would actually leave the UK given his connections here and his wife’s reluctance to move elsewhere. These factors pointed to the conclusion that, on the balance of probabilities, Mr Henkes had formed an intention to remain in the UK indefinitely by the start of the relevant tax year and, as such, had acquired a UK domicile of choice. As such, it was reasonable for HMRC to not issue closure notices in relation to its enquiries into the tax returns for 2014/2015 and 2015/2016 and seek information on Mr Henkes’ worldwide assets in relation to these years.

Issues Arising

This decision leaves some uncertainty as to whether or not it is correct that the FTT can decide an individual’s domicile status as a preliminary decision in a case such as this, as this is contrary to the decision arrived at in the previous case of Levy. While the ability to obtain a determination on domicile status at an earlier stage in the process may enable taxpayers to save the costs and burden of a lengthy domicile enquiry, the confirmation that such a decision would be binding increases the risk to taxpayers instigating applications for closure notices.

Further, the decision recognised that the ongoing litigation in the case of Embiricos may have significant bearing on whether it is possible for HMRC to issue a partial closure notice in relation to any year for which they do not have sufficient information to amend the taxpayer’s self-assessment return. If it is decided that this is not the case, the FTT concluded that HMRC would, in respect of Mr Henkes, also have reasonable grounds not to issue a partial closure notice until such necessary information had been provided. In the alternative, if it is found that such a partial closure notice can be issued, than Mr Henkes would succeed in his application to order one to be issued (albeit, the FTT noted that given the determination as to his domicile status, he may no longer wish to do so). The appeal in Embiricos is scheduled to be heard by the Upper Tribunal in October 2020, which we hope will remove the ambiguity surrounding this issue.

Finally, the FTT’s decision in relation to Mr Henkes’ domicile status may raise flags for taxpayers who consider themselves to be non-domiciled on the basis that they intend to leave the UK on retirement. Whilst every domicile case turns on its own facts, in this age of technology which enables people to continue working until later in their lives, taxpayers may wish to consider whether their domicile status is a clear-cut as they had previously thought.

Impact on other taxpayers

This decision turned on the specific facts of Mr Henkes’ situation, and his close ties to the UK. Even so, the judge stated that he found it difficult to make a decision, and in contrast to Mr Henkes, other taxpayers may be able to show that:

  • they have strong personal ties to their country of origin (or planned destination) such as friends and family in that country;
  • they have long-standing connections to the other country, perhaps including a family home used as more than a holiday home (Mr Henkes’ Spanish property appeared to be a relatively recent holiday home purchase);
  • a clear determination to move to a specific other country or state, preferably the country or state of their domicile of origin; and/or
  • a clear plan for retirement or to carry out business in the other country.

Being able to show a distinct and thought-out plan for departure from the UK, together with retaining strong personal links to the planned destination, will assist taxpayers in pushing back against HMRC’s current aggressive tactics. It will not be the case that the decision in Henkes automatically means that all long-term UK residents are domiciled in the UK, and we recommend taking advice on receipt of any communication from HMRC in this regard.

Written by John Barnett and Helen MacLeod.

Key contact

Headshot John Barnett

John Barnett Partner

  • Head of Partnerships
  • Private Client Services
  • Tax

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