The importance of domicile record keeping | a quick guide for tax advisors

Often, the stress is made worse because the client is asked to provide details they had never expected to be asked for. Much of the information required may be personal rather than financial. The paperwork they might have kept if they had realised its potential importance might have been lost or destroyed.

Anticipating the potential for an enquiry and gathering the necessary evidence as it arises over a period of years can pay dividends. That process - domicile record keeping - is what I want to cover here.

Painting the picture

Unlike UK tax residence (which since 2013 has been established through a series of tests set out in the Statutory Residence Test), domicile is established by “painting a picture” of someone’s life, lifestyle and intentions. 

All too often, when painting that picture, a client has to start from scratch, looking through many years of old paperwork to help answer detailed (and sometimes intrusive) questions. 

“Domicile record keeping is like any good insurance policy: you hope it may never be called upon, but when an enquiry letter arrives, it can be worth its weight in gold”

Assembling evidence over time and having it ready in one place makes the task of answering the questions much easier. Evidence that has been gathered contemporaneously as events occurred also has more value than evidence assembled after the event and in direct response to an enquiry.

Domicile record keeping is, therefore, like any good insurance policy: you hope it may never be called upon, but when an enquiry letter arrives, it can be worth its weight in gold. 

The consequence of not having good domicile records can be an unnecessarily long and stressful enquiry with the risk of additional tax, interest and penalties if there’s insufficient evidence to support the case being made. 

How do you get started with domicile record keeping?

As a tax advisor, your first task is to identify clients at risk, discuss the importance of record keeping with them, and agree on a record keeping plan. It’s easy for a client to set out with good intentions, but for those good intentions to lapse, so a regular – perhaps annual – review of the records is advisable.  

The client will need to be made aware of the factors HMRC may look at in an enquiry. They will need guidance on what records to keep. Some (those that loom large in the picture being painted) may be obvious to them, but others (those that add background and colour) may not be. 

Records might include: 

• Evidence of an intention to settle (in the form of correspondence with lawyers and property agents)
• Evidence of making a will under the laws of the country of domicile
• Evidence of giving up ties to other countries
• Documents that show registration to vote
• Other official government registration paperwork. 

There are many other possible sources of information that can help paint the picture, for example, records of financial ties to a specific location, including bank accounts, investments, and property ownership, as well as records of travel and the dates and dates duration of stays. 

“It's important to keep the records up-to-date and in a safe place, where both client and advisor can easily access them”

Enquiries are intrusive and stressful. Briefing the client well ahead of any potential challenge, telling them what questions might be asked and getting them into the habit of maintaining good domicile records should make the questions (if and when they do actually come) seem less surprising. The client will also feel that the advisor has been with them all along, proactively protecting them by ensuring they are well-prepared. 

Domicile record keeping isn’t just another bit of administration: it can be vital in building a strong and effective relationship between client and adviser.

… And that can make all the difference when an enquiry letter lands on the doormat.