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Where Taxpayers and Advisers Meet

US Citizen Retiring in England

ukblairs
Posts: 5
Joined: Fri Dec 18, 2009 5:44 pm

US Citizen Retiring in England

Postby ukblairs » Fri Dec 18, 2009 6:46 pm

I am a US citizen, my wife in a British citizen. After 26 years of being the "resident alien" my wife decided it was time for us to retire in England. My father and mother were born in the US and I was born and have been a legal resident of NH in the US for 62 years (all my life). In July 2009 we sold our home in the US. My wife moved back to England in August and I followed her in October. It is my indent to live with my wife in England indefinitely, but if something were to happen (death or divorce) I would return to the US. My wife and I plan on buying house in England.

My income comes from the following sources:
A. US Air Force retirement pay.
B. US Veterans Administration disability payment.
C. City of Manchester NH (Municipal Government) retirement pay.
In the future I will also draw my US Social Security benefits.

I would greatly appreciate it if someone could please answer the following questions: Am I correct in assuming
1. My domicile remains the US and that I a non-domiciled resident of England?
2. My US Air Force retirement pay, my US VA disability payments, and my Social Security benefits are taxable in the US and not the UK?
3. Is my City of Manchester NH (Municipal Government) retirement pay taxable in the UK?

Thanks in Advance for any any help,
John

IanW(fr)
Posts: 36
Joined: Wed Aug 06, 2008 3:31 pm

Re: US Citizen Retiring in England

Postby IanW(fr) » Thu Dec 31, 2009 1:29 pm

Hi Mr Blair,

As there have been no replies, I'll have go, as an Expat myself, albeit a Brit in France. Oh and welcome to the UK, yes you are welcome to it....no ...seriously folks..

Generally, US citizens in the eyes of the US IRS remain taxable till death and possibly beyond, wherever they reside in the World. Also, once you become ordinarily resident in the UK the UK's HMRC (Her Majesty's Revenue and Customs) will seek to tax your 'Worldwide' income and capital gains.

To answer this conundrum the UK-USA Double Taxation Agreement (or Treaties or Conventions) provides solutions - specifically Article 17 deals with Pensioners;

http://www.hmrc.gov.uk/international/us ... idated.pdf

My reading of Article 17 (not an expert interpretation) is that the DTA gives the UK the sole right to apply income tax on your pensions.

[the trick to reading these treaties is to substitute the words 'UK' or 'USA' for 'contracting state' and 'other contracting state' as appropriate]

Article 2 lists taxes covered by the agreement, it does NOT mention State taxes, but I see NH has no state income tax nor death duties... ah - 'Freedom or Death' what a bumper sticker ! :)

Additionally, Article 2 does NOT mention Death taxes (US = Federal Estate Duties, UK = IHT), there may be a seperate older USA-UK DTA for death taxes, you need to research that, it may not be on the web.

'Domicile' - Is a very particular term in UK tax law, it is entirely different to 'residence'. The HMRC definition of 'domicile' has recently changed in 2009. I believe the new rules will make you 'deemed' to be UK 'domiciled' once you have remained in the UK for 7 years out of 9.

Once you have become domiciled in the UK, the HMRC will seek to charge IHT on your worldwide Estate upon your death.

Provided you remain a US citizen (giving it up is in itself a process) should you return to the USA at any time AND SEVER all UK links - as you indicate in the event of your wife's death or divorce, then HMRC should accept that you to have returned to your 'domicile of birth' and you will lose your acquired UK domicile. NB: Severing the UK connection would include handing back your British Passport and selling all UK real-estate should you possess either.

I understand Budweiser-Lite is now available in selected UK supermarkets.

Cheers,

IanW(fr) - lost in France, I am an Engineer, NOT a Tax Expert.

Michael I. Atlas, CA
Posts: 192
Joined: Wed Aug 06, 2008 3:37 pm
Location: Toronto
Contact:

Re: US Citizen Retiring in England

Postby Michael I. Atlas, CA » Thu Dec 31, 2009 4:20 pm

Not correct-if you read the current postings regarding a similar issue, you will see that as long as the recipient is still a US citizen, he/she will remain subject to US tax on the US pensions. This is because of the fact that Article 1(4) of the Treaty generally provides that the US retains its right to tax its citizens, and this effectively overrides the exemption in Article 17(1)(a). You will note that Article 1(5) provides some limited exceptions to the US's ability to tax its citizens living in the UK, but that does not extend to Article 17(1)(a).
Michael I. Atlas, CA,CPA,TEP
Practice Restricted To Tax
Toronto, Canada
http://www.TaxCA.com

maths
Posts: 7594
Joined: Wed Aug 06, 2008 3:25 pm

Re: US Citizen Retiring in England

Postby maths » Fri Jan 01, 2010 5:51 pm

IanW comments:
'Domicile' - Is a very particular term in UK tax law, it is entirely different to 'residence'. The HMRC definition of 'domicile' has recently changed in 2009. I believe the new rules will make you 'deemed' to be UK 'domiciled' once you have remained in the UK for 7 years out of 9.
This is incorrect. The new rules introduced effective 6th April 2008 (not 2009) relate to the taxability of non-UK domiciled individuals but does not change in any way the basic rules for determining an individual's domicile status. "Deemed" UK domicile status applies only for UK inheritance tax purposes and only, basically, after 17 tax years of UK residency.

On
ce you have become domiciled in the UK, the HMRC will seek to charge IHT on your worldwide Estate upon your death.
This is correct subject to any overriding provisons contained in the UK/USA inheritance tax convention (which is different to the income tax convention).
Provided you remain a US citizen (giving it up is in itself a process) should you return to the USA at any time AND SEVER all UK links - as you indicate in the event of your wife's death or divorce, then HMRC should accept that you to have returned to your 'domicile of birth' and you will lose your acquired UK domicile. NB: Severing the UK connection would include handing back your British Passport and selling all UK real-estate should you possess either.
It is certainly not clear that you will acquire for UK tax purposes a UK domicile of choice as the above suggests. A determination will depend upon the precise facts but your indication of a positive intention to return to the USA in the event of your wife's death is a strong indicator supporting a contention that you have not acquired a UK domicile of choice (respective ages and health are important in this regard). Certainly surrendering of a British passport would not be necessary.

In principle it is probably preferable that you avoid acquiring a UK domicile of choice.

You ask:
1. My domicile remains the US and that I a non-domiciled resident of England?
2. My US Air Force retirement pay, my US VA disability payments, and my Social Security benefits are taxable in the US and not the UK?
3. Is my City of Manchester NH (Municipal Government) retirement pay taxable in the UK?
Re point 1, see my comments above.

Re point 2, Article 17 of the UK/USA agreement seems in point.
As Michael points out the "Savings Clause" of Article 1(4) and 1(5) are in point.

However, I suggest that the Savings Clause is not applicable to your USA Social Security pension (covered by 17(3)) and this is in principle taxable only in UK; similarly the City of Manchester pension is in principle only subject to UK tax.

Your USA Air Force pension (covered by 17(1)(a)) is subject to the Savings Clause and thus is subject to USA tax (and UK tax but only if remitted to the UK).

It must be noted that re your USA Social Security pension avoidance of USA tax thereon under 17(3) does require it be remitted to the UK (Article 1(7))and thus subject to UK tax (ie as a non-UK domiciled individual UK tax applies to foreign income which is remitted to the UK).

I would welcome Michael's views on the above.

ukblairs
Posts: 5
Joined: Fri Dec 18, 2009 5:44 pm

Re: US Citizen Retiring in England

Postby ukblairs » Fri Jan 01, 2010 7:19 pm

Ian,

I have reread the USA/UK Tax Treaty along with a Department of the Treasury Technical Explanation of the Treaty and now agree that my Social Security benefits will be subject to UK taxes, but not US taxes IAW Article 17 paragraph 3.

However, my US Air pension and possibly my City of Manchester pension should be covered under Article 19 paragraphs 2(a) and 2(b):

2(a) any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall, subject to the provisions of sub-paragraph b) of this paragraph, be taxable only in that State;

2(b) such pension, however, shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

According to the Department of the Treasury Technical Explanation of the Treaty:
“Pensions paid to retired civilian and military employees of a Government of either State are intended to be covered under paragraph 2. When benefits paid by a State in respect of services rendered to that State or a subdivision or authority are in the form of social security benefits, however, those payments are covered by paragraph 2 of Article 17”

Based on Article 19 para 2 it would appear that my Air Force pension would not be taxed in the UK even when remitted to the UK.

My City pension is paid out of funds created by a City (local) government for services I performed as a City (local) government employee and I believe is also subject to Article 19 paragraph 2.

Your opinion of my interpretation would be greatly appreciated.

Thanks for any help,
John

Michael I. Atlas, CA
Posts: 192
Joined: Wed Aug 06, 2008 3:37 pm
Location: Toronto
Contact:

Re: US Citizen Retiring in England

Postby Michael I. Atlas, CA » Fri Jan 01, 2010 7:34 pm

Regarding MATHS posting, I agree that since US social security covered by Article 17(3), the US's ability to tax under 1(4) would not apply. However, I see no basis for hisconclusion that City of Manchester pension subject to the same treatment-that is not established under social security legislation, so please clarify how you come to that conclusion???

I also agree with subsequent posting which leads to the conclusion that Air Force and City of Manchester pensions would be governed by 19(2)(a), meaning that only US, and not UK can subject them to tax (since he is not UK citizen, 19(2)(b) n/a).
Michael I. Atlas, CA,CPA,TEP
Practice Restricted To Tax
Toronto, Canada
http://www.TaxCA.com

maths
Posts: 7594
Joined: Wed Aug 06, 2008 3:25 pm

Re: US Citizen Retiring in England

Postby maths » Fri Jan 01, 2010 8:14 pm

1. Agree USA AF Pension only subject to USA tax under Art 19(2)(a).

2. Re Manchester Pension, is it not the case that under 19(2)(a) only UK can tax (19(2)(b) inapplicable as individual not a resident of USA).

However, the Savings clause applies overriding Art 19 (as Art 1(5)(b) inapplicable to Art 19 as individual is a USA citizen).

If this is correct, USA can tax. However, this does not remove the UK's right to also tax.

Michael I. Atlas, CA
Posts: 192
Joined: Wed Aug 06, 2008 3:37 pm
Location: Toronto
Contact:

Re: US Citizen Retiring in England

Postby Michael I. Atlas, CA » Fri Jan 01, 2010 9:21 pm

Regarding the following:
"Re Manchester Pension, is it not the case that under 19(2)(a) only UK can tax (19(2)(b) inapplicable as individual not a resident of USA).

I do not agree that it is the case-it is a pension paid by a US municipal body to a UK resident , and hence under 19(2)(a) only US can tax it (19(2)(b) n/a because not UK citizen). No different than Air Force Pension.

Did you perhaps miss the "NH" after "Manchester", signifying (the state of) New Hampshire and think it was Manchester England?
Michael I. Atlas, CA,CPA,TEP
Practice Restricted To Tax
Toronto, Canada
http://www.TaxCA.com

ukblairs
Posts: 5
Joined: Fri Dec 18, 2009 5:44 pm

Re: US Citizen Retiring in England

Postby ukblairs » Fri Jan 01, 2010 9:24 pm

I don’t think I made myself clear. My Manchester pension is from Manchester, NH, USA, not Manchester England. As such it should be taxable in the USA and not in the UK.

John

Michael I. Atlas, CA
Posts: 192
Joined: Wed Aug 06, 2008 3:37 pm
Location: Toronto
Contact:

Re: US Citizen Retiring in England

Postby Michael I. Atlas, CA » Fri Jan 01, 2010 10:12 pm

I do not think you failed to make yourself clear. I just think that perhaps the reference to "NH" that you had may not have had the same impact on someone on that side of the "pond" as it would here!
Michael I. Atlas, CA,CPA,TEP
Practice Restricted To Tax
Toronto, Canada
http://www.TaxCA.com


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