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In short, domicile is the country in which a person lives, which may be different from the country in which he or she has citizenship. UK law recognizes that a British citizen (see: British citizenship) may live permanently outside the UK, and that such citizens have a duty abide by the laws of the country of domicile. To simplify matters, UK law makes two assumptions: first, every citizen has some domicile (rather than none); second, no citizen has more than one domicile. Unless a citizen has adopted a 'domicile of choice', the law assumes the 'domicile of origin', which is essentially the domicile one has at birth. One cannot choose domicile (according to law) until reaching 16 years of age; people younger than this are assumed to have the same domicile as their parents -- father, in the case of legitimate children, and mother in the case of illegitimate children.
Why is this important? The question of domicile arises frequently in cases of marriage and divorce. If British citizens domiciled overseas marry or divorce, they may have to do so according to the regulations of the domicile country, and these may not be the same as in the UK. Provided that they are genuninely domiciled overseas, British courts will usually accept the marriage or divorce as binding in the UK.
Of course, it would not do to have domicile defined weakly, so that people could marry or divorce illegally while on holiday abroad, for example. To be able to claim domicile, UK law will require a demonstration that you are actually living outside the UK, and that you intend to continue to do so indefinitely. This last point is known by the term animus manendi. For example, the fact that you have purchased a house in the domicile county may be taken as animus manendi.