Regardless of your residency in the Cayman Islands, it is your domicile status that determines whether you pay UK Inheritance Tax on your worldwide assets. Read on for more information on this very relevant topic for UK citizens who live in the Cayman Islands. Below is a detailed explanation of Domicile of Origin, Domicile of Dependence and Domicile of Choice and how each affects your status as it relates to inheritance tax.
Domicile
UK Domicile Advice for Cayman Residents
In the main article, it is mentioned that the concept of domicile is generally no longer relevant to UK IHT from 6 April 2025.
This change in law follows a long period where the concept of domicile was pivotal in determining liability to IHT. However, because of this change the law includes a transitional provision.
This states that where an individual would otherwise be long term resident in a tax year, this transitional provision basically allows the old rules (based on domicile) to prevail and that individual will be treated as not a long-term UK resident if they were non-UK domiciled on 30 October 2024. These rules are complex but can benefit those who have been living in Cayman for many years and are domiciled there.
For this reason we have set out below a detailed explanation of Domicile of Origin, Domicile of Dependence and Domicile of Choice and how each affects your status as it relates to inheritance tax.
Domicile is not defined in legislation (Acts of Parliament), unlike tax residence. Domicile is a common law concept - in other words, the Courts have developed the concept of domicile over the years and the principles of domicile are contained in the published judgements of courts and tribunals. This is clearly not that easy to follow and advice should be sought.
You can only have one domicile at a time, and you cannot be without one. Your domicile is usually where your permanent home is and your existing domicile will continue until you acquire a new domicile. Domicile is distinct from your nationality and residence and a wide range of evidence has to be examined in evaluating your intentions to establish whether you have changed your domicile. There are three types of domicile which we have explored below.
Domicile of Origin
You will have acquired a domicile of origin at birth and you will have acquired your father’s domicile at the time of your birth unless your parents were not married at the time of your birth, in which case you would have acquired your mother’s domicile. A domicile of origin will continue throughout life until a domicile of dependence or choice is acquired.
Domicile of Dependence
The domicile of a minor child normally follows that of the person on whom they are legally dependent (for example their father). An individual is capable of having a domicile of choice when they turn 16.
From the age of 16 an individual can change their domicile by choice but if no such intention is demonstrated their domicile of dependence persists.
Domicile of Choice
A domicile of choice is acquired by taking up residence in a new country with the intention of making it one's permanent home. The domicile of origin does not disappear once you acquire a domicile of choice and will revive if your domicile of choice or dependence is abandoned. In the event that you obtain a domicile of choice in Cayman and then leave Cayman permanently, your domicile of origin would revive (unless an alternative domicile of choice is acquired simultaneously).
This will be relevant for many readers. If you have become a Cayman resident before 30 October 2024 and wish to consider whether the transitional rules apply you may need to consider if you are non-UK domiciled by origin, dependence or choice.
The acquisition of a domicile of choice is notoriously difficult. As a general rule, you need the following to have obtained a domicile of choice in Cayman:
• Currently reside in Cayman; and
• have the intention to reside permanently or indefinitely in Cayman.
In order to have historically acquired a domicile of choice in Cayman before October 2024, in practice, you must have actively sever ties with your country of origin (for example, England and Wales, Scotland or Northern Ireland). You must have also begun to actively acquire a new domicile of choice. Certain actions are indicative of the adoption of a new domicile of choice. For example, making a will under Cayman law, cancelling UK club memberships and buying a family home in the Cayman Islands.
His Majesty's Revenue and Customs (HMRC) can request that you (or your heirs or executors) present strong evidence to show your intention to live in Cayman, either permanently or indefinitely. Even though living in Cayman for a long period of time is an important factor, it does not in itself establish a domicile of choice in the Cayman Islands.
You should retain all evidence to support your change of domicile. Ideally a domicile file should be maintained. It is amazing how quickly memories fade. At some point you or your executors may need to recall facts and provide evidence to support your tax position.
Overall, it is important to ask yourself, “where is my home”, and if the answer is Cayman and nowhere else, you may be well on your way to becoming non-UK domiciled. If HMRC examines your domicile status, they will scrutinize every aspect of your life (and possibly your parent’s life as well as your husband's life if you are a woman who married before 1974).
You will have a hard time proving that you intend to live in Cayman indefinitely if you don't have Permanent Residence. However, this is a subtle point and even if you are restricted in your ability to stay in Cayman, if your intention to remain in Cayman is fixed, you may well achieve non-UK domiciled status. If you have lived in Cayman for many years and then decide to move to another country, your domicile of origin may revert immediately. This is unless you immediately acquire another domicile of choice elsewhere. Finally, if you live in Cayman but have a couple of homes elsewhere (eg Florida and France) and spend time in all of those places, HMRC may try and argue that you cannot decide where you intend to live permanently and that your domicile of origin remains in place.
Example 1
Joe, who originated in Scotland, left Scotland permanently in 2019. His intention was to work for five years in Cayman, then settle permanently in The Bahamas. However, in July 2022, Joe decided to live permanently in Cayman. He thought five years would be enough, but he ended up falling in love with island life and never wanted to leave!
Joe acquired a Cayman domicile of choice in July 2022 (the first time he was both resident in Cayman and intended to live permanently or indefinitely in Cayman. He is likely therefore to be able to benefit of the transitional provisions.
Hotchkiss Associates Limited
Cooil Shellagh House, Kirk Michael, Isle of Man
Tel: +44 (1624) 872 140
Email: info@Hotchkiss.im or www.hotchkiss.im
A professional team of tax advisors. They provide clear and concise UK and international tax advice for clients. They offer UK tax services in the following areas: bespoke private client tax advice, succession and estate planning for high-net-worth families and individuals, including tax residence and domicile reviews; tax-efficient structuring using trusts and offshore companies; funds taxation and business structuring; dealing with tax investigations and using disclosure facilities as well as tax returns. Paul Hotchkiss is the author of the UK tax and domicile commentary in this section.
