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Where are you domiciled?

By Gareth Horsfall - Topics: Domicile, domiciled, Italy, Residency
This article is published on: 1st November 2017

01.11.17

As a foreign national living in Italy for many years I find it sometimes confusing to look at where you come from and know where you belong. I rang my prefettura the other day to check on the progress of my Italian cittadinanza application only to be told that I would have to keep checking the Ministero del Interno website to see whether any updates or further requests for information would be required and that no confirmation email would be sent.

Anyway, this got me thinking about the issue of ‘where we belong’ and ‘where we think we belong’. The difference being, one is based on facts and one is based on what we believe to be true.

If I take a cross section of you, my group of clients, and stranieri living in Italy, I could split you into many different groups (it is not an exhaustive list), but a good summary would be as follows:

  • Foreign nationals married to Italians (like myself)
  • Foreign nationals who are married/partners with someone of their same nationality
  • Foreign nationals married/partner with someone of a different nationality
  • Foreign nationals who are not married

And within this group I could create sub groups of you:

  • those who don’t intend on returning to your country of origin
  • those who have made a long term move to Italy but intend on moving away from Italy at some point in the future, mainly for reasons of later retirement when language, health, and maybe grandparenting considerations become more of an issue

However, in each category and sub category we have to work with the fact that we have accumulated financial assets which, from a fiscal point of view, will be subject to taxation in any one country or another. Knowing which group and sub group you belong to, and the definition of such, will likely determine which jurisdiction you are considered for inheritance tax/ succession purposes.

So let’s focus on the subject of domicile for a moment, since the application of domicile will determine which tax authority will have overriding power when it comes to your inheritance tax or successione. Firstly I want to highlight the definition of domicile in the UK (which may also be applied in other similar countries which work on a basis of common law)

Definition of domicile
The domicile is the country which a person officially has as their permanent home, or has a substantial connection with. When you’re born, you’re automatically assigned to the same domicile as your parents, which is defined as your domicile of origin. If your parents were not married, typically your domicile of origin will be the same as your mother, although this may vary depending on each individual’s circumstances.

Your domicile of origin then continues until you acquire a new domicile – even if you move abroad, unless you take specific action, it is unlikely that your domicile will change.

Now let’s look at the definition of domicile in Italian law, which has a totally different meaning:

The place of domicile is taken to be an individual’s principal place of business and interests.

(see full definition of residency and domicile in Italy HERE)

As you can see the two definitions have quite a different meaning. This creates problems when looking at inheritance tax, succession planning and will writing.

CAN I BREAK DOMICILE OF ORIGIN?
For those of you who fit into the category of having lived in Italy for many years and have few or no connections back in your country of origin, it might be that you are now in the position that you could break the domicile of origin and be subject to the law of Italy on your worldwide estate. This might have some advantages given that succession taxes in Italy are very low compared to other European countries.

However, to break the domicile of origin rule, specifically when relating to UK citizens, you would have to:

  • show that you were not domiciled in the UK within the three years before death
  • show that you were not resident in the UK in at least 17 of the 20 income tax years of assessment ending with the year in which you died

CHANGING YOUR DOMICILE
You might also try and actively change your domicile but to do this you will need to satisfy a number of criteria and be able to provide evidence of each one. The basic criteria for changing your domicile will typically include as an absolute minimum:

* Leaving the country in which you are domiciled and settle in another country
* Provide strong evidence that you intend to live in your new location permanently or indefinitely.

However, the criteria for changing your domicile are incredibly varied and include things like closing bank accounts down in your country of origin, selling all properties that you may own there and finally each case will be judged on it’s merit incorporating the evidence provided.

SO WHAT IS THE SOLUTION IN ITALY?
The long and short of this is that when you die, it is highly likely that as a foreign national living in Italy, that unless you have attained cittadinanza, the Italian authorities will refer back to your country of origin and allow that authority to apply their inheritance tax code to your worldwide assets. (Any Italian taxes would still need to be applied, where appropriate to Italian domestic assets, such as property) Whilst this might be preferable for some, you may wish the Italian tax code to apply on death because of its lower tax rates. If this is the case then you have to try and break domicile and this can only be determined at the point of death by the relevant tax authorities. If you want to know how hard that could be then see the ”famous example’ in the column opposite.

Clearly it makes sense to start planning to minimise problems from an inheritance tax point of view, as soon as possible. Having a will in place is the first step to ensuring that your relatives are not left with cross border legal burden when the inevitable happens.

Do you know the rules around domicility?

By Derek Winsland - Topics: domiciled, Events, France, Habitual Residence, Residency
This article is published on: 1st September 2017

01.09.17

Like many in France, I took time off this month, and to while away the time, caught up on some industry articles. One such article was written by Old Mutual International that presented the results of a small survey it can conducted amongst ex-pats regarding what they believed were the rules around domicility.

It asked the respondents six questions, and the answers were sufficiently enlightening that I thought I’d share them with you.

1. British expats mistakenly believe they are no longer UK domiciled
Everyone has a domicile of origin, acquired at birth. For UK nationals, it’s possible to acquire a new domicile (a domicile of choice) by settling in a new country with the intention of living there permanently. However, it is not always guaranteed that one can lose one’s UK domiciled status and acquire a new one, as there are no fixed rules (as you would expect from HMRC) as to what is required.

Living in another country for a long time, although an important factor does not prove a new domicile has been acquired. Among the many conditions that HMRC list, it states that all links with the UK must be severed and they must have no intention of returning to the UK.

Research* shows 74% of UK expats who consider themselves no longer UK domiciled still hold assets in the UK, and 81% have not ruled out returning to the UK in the future. This means HMRC is likely to still consider them to be deemed UK domiciled.

2. British expats mistakenly believe they are only liable to UK inheritance tax (IHT) on their UK assets
As most British expats will still be deemed UK domiciled on death, it is important to understand that their worldwide assets will become subject to UK IHT. A common misconception is that just UK assets are caught. This lack of knowledge could have a profound impact on beneficiaries.

Before probate can be granted, the probate fee and any inheritance tax due on an estate must be paid. With UK IHT currently set at 40%, there could be a significant bill for beneficiaries to pay before they can access their inheritance. Setting up a life insurance policy could help ensure beneficiaries have access to cash to pay the required fees. Advisers setting up policies specifically for this purpose must ensure they place the policy in trust to enable funds to be paid out instantly without the need for probate.

Research* shows a staggering 82% of UK expats do not realise that both their UK and world-wide assets could be subject to UK IHT.

3. British expats mistakenly believe they are no longer subject to UK taxes when they leave the UK
All income and gains generated from UK assets or property continue to be subject to UK taxes. Some expats seem to think that just because they no longer live in the UK they don’t need to declare their income or capital gains from savings and investments or property held in the UK. By not declaring the correct taxes people can find they end up being investigated by HMRC, and the sanctions for non-disclosure are getting tougher.

Research* shows 11% of UK expats with UK property did not know that UK income tax may need to be paid if their property is rented out, and 27% were unaware that Capital Gains Tax may need to be paid if the property is sold.

4. British expats mistakenly believe that their spouse can sign documents on their behalf should anything happen to them
The misconception that a spouse or child or a professional will be able to manage their affairs should they become mentally incapacitated is leading people to think they don’t need a Power of Attorney (POA) in place. This could result in families being left in a vulnerable position as their loved ones will not automatically be able to step in and act on their behalf. Instead, there will be a delay whilst they apply to the Court of Protection to obtain the necessary authority. This extra complication is all avoidable by completing a lasting POA form and registering it with the Court of Protection.

Research* shows 44% of UK expats wrongly believe their spouse will be able to sign on their behalf should they become mentally incapacitated.

5. British expats unsure if their will is automatically recognised in the country they have moved to
It is wrong to assume a will or POA document is automatically recognised in the country in which they move to. Often overseas law is driven by where the person is habitually resident, and the laws of that country will apply. Therefore, people may require a UK will and POA for their UK assets and a separate one covering their assets in the country they live. The wills also need to acknowledge each other so as not to supersede each other.

Research* shows 50% of UK expats do not know if a will or POA is legally recognised in the country they have moved to.

If you feel you could be affected by this, or have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.

Enjoying the perfect day together

Le Tour de Finance, Domaine Gayda, 6th October 2017

This year’s event is now fully subscribed and we are unable to accept any more places. If you were wanting to attend, but hadn’t got round to booking, then all is not lost. It’s possible to make a personal appointment to see me in our Limoux office. Please ring either the office or me directly on my mobile.

All about residence……..

By Gareth Horsfall - Topics: Domicile, domiciled, Italy, residence
This article is published on: 17th March 2015

17.03.15

What are the issues facing some of you? One which raises its head periodically is the question of residency and tax residency in Italy.

Before I go into this I would like to look back for a moment at some very recent Italian past and reflect on why we are where we are today.

2012 was a turning point in Italian politics and the way that, we, as expats live and could continue to live in Italy. It was the start of the New Norm. (as I like to call it)

It started with the moment when Berlusconi was ousted as Premier and was swiflty followed by the non elected Mario Monti. What was once accepted as the norm suddenly went under the spotlight. This was seen most dramatically in new tax legislation imposed on domestic and foreign assets and incomes and the sudden drive to track down and prosecute tax offenders.

There was no longer the option to live between 2 residency’s, but the subject became much more matter of fact (see rules below for details). Taking residency, by definition, means you are subject to Italian tax law.

The law is clear, as follows:

  • An individual is considered resident for tax purposes if, for most of the calendar year (i.e. 183 days) is:
  • registered with the Registry of the Resident Population (Anagrafe)
  • or has his/her residence or his/her domicile in the territory of the Italian state, as defined by Section 43 of the Italian Civil code


According to Section 43 of the Italian Civil Code:

  • The place of residence is taken to be the place where the individual has habitual abode
  • The place of domicile is taken to be individual’s principal place of business and interests

In fact, residency has never been a choice. It has always been a matter of fact and a tax agency would always see it that way. If you spend the majority of time in Italy then you will be deemed tax resident as defined by the rules above.

The key as always is in the planning.
If you are a holiday home owner then you should rarely take residency if your clear intention is to maintain your principal residence elsewhere.

But if you want to enjoy Italy all year round and pay the lower rate of VAT on a property purchase, benefit from the good health care system, be able to buy a car here (non residents cannot purchase a car legally in Italy), and benefit from lower utility rates then residence is required and certain legal obligations apply.

As I always say, you will pay more tax by living in Italy versus other Northern European countries and the USA. How can we expect to pay the same for sunshine? !! But a rural life, for example, should see your costs fall.

Despite all this, and having lived in Italy for years, I can tell you that there are tax-reduction and financial planning strategies that can lighten the burden somewhat. I should know! I have fallen for every tax trap in the book and have had to pay the tax man for it. But failure to plan effectively in Italy, ultimately, sharpens the senses.

If you would like to contact me with a view to finding out more then feel free to do so so. We don’t charge fees at The Spectrum IFA group so you can feel secure that you won’t be out of pocket by seeking a little advice.