Shah v HMRC: the court’s approach to the domicile status of long-term UK residents

The First-tier Tax Tribunal’s recent decision in Shah v HMRC [2023] UKFTT 00539 (TC) provides a useful reminder of the considerations that the courts will take into account when determining an individual’s domicile status under general law, and serves as a warning to those taxpayers attempting to maintain a non-UK domicile based on vague intentions, despite living in the UK for extended periods of time. As such, the case should be considered carefully by long-term UK resident individuals who may hope to take advantage of a UK estate tax treaty (such as the UK estate tax treaties with India or Pakistan – as with this case) to potentially limit their exposure to UK inheritance tax by virtue of their non-UK domicile status.

The case involved an appeal against an assessment from HMRC that the taxpayer, Mr Anantrai Shah, was domiciled in England and Wales at the time of his death. The appeal was brought by Mr Shah’s son and executor.

Case facts

Mr Shah was born in Karachi in pre-partition India in 1929 where he spent his childhood. It was accepted by all parties that he had a non-UK domicile of origin. Following a period of study in the UK from 1954 to 1957, Mr Shah worked and lived in Tanzania and India, before returning to the UK in around 1973 with his wife and children. Mr Shah worked as a pharmacist for a number of years, selling his business in 1994 (but continuing to work until 1997). Following a period of poor health, Mr Shah died in the UK in 2016.

Mr Shah’s son argued that Mr Shah had been non-UK domiciled at the time of his death, having failed to acquire a domicile of choice in England and Wales at any time during his period of UK residence. This was on the basis that he had always intended to return to India at some future time, with his initial move to the UK being prompted by the need to find a job. It was suggested that Mr Shah had originally intended to leave the UK following his retirement, although this was subsequently delayed for various reasons (including the deaths of his daughter and wife in 2010 and 2011 respectively and his subsequent poor health). Nonetheless, it was argued that, at all times, it was his intention to return to India, which was not just a “vague possibility, or a nebulous sentiment”.

A number of factors were examined by the Tribunal, including the frequency of Mr Shah’s trips to India; his family connections in both India and the UK; his Indian social and religious connections in the UK; his citizenship status (Mr Shah had taken the opportunity to acquire British citizenship in 1961 and relinquished his Indian citizenship at that time, although he acquired overseas citizenship status from India in 2014); and the steps he had taken to return to India.

There was little documentary or circumstantial evidence in support of Mr Shah’s domicile position (he had prepared a “DOM1” form in 2012 indicating his intention to leave the UK once he had “sorted [his] personal affairs and [his] health allows”, although this was not submitted to HMRC), but the Tribunal also heard witness evidence from relevant family members.

Tribunal decision and points to note for clients

In considering the evidence across Mr Shah's life, the Tribunal found that Mr Shah had not shown an intention to return to India and so was domiciled in England and Wales at the time of his death by virtue of having formed a domicile of choice in the UK at some point after 1973. The Tribunal noted that, despite several trigger events to leave the UK (e.g. the sale of his business, the deaths of his daughter and wife, the sale of the family home etc.), Mr Shah took no steps to return to India and determined that any intentions he had to move to India were “at best vague".

The case demonstrates that the courts will look at a number of factors across an individual’s life when making a domicile assessment, and so those seeking to maintain their non-UK domicile status (particularly in circumstances where they may be seeking to rely on the terms of an estate tax treaty) should consider their position carefully and have suitable evidence to support their position.