From: Biwah
Newsgroups: uk.finance uk.legal
Subject: Re: Trust Fund / Inheritance Tax
Date: Sun, 13 Feb 2005 19:10:16 +0000
On 13/2/05 6:06 pm, in article NZmza6P+c5DCFw7o@johnboyle1.demon.co.uk,
"john boyle" wrote:
>> The definition of "domicile" is different as between England and Florida,
>> but perhaps the tax treaty resolves that point.
>
> AFAIAA it doesnt, sadly.
FWIW:
US-UK Estate Tax Convention
ARTICLE 4
FISCAL DOMICILE
(1) For the purposes of this Convention an individual was
domiciled:
(a) in the United States: if he was a resident (domiciliary)
thereof or if he was a national thereof and had been a resident
(domiciliary) thereof at any time during the preceding three years; and
(b) in the United Kingdom: if he was domiciled in the United
Kingdom in accordance with the law of the United Kingdom or is treated
as so domiciled for the purpose of a tax which is the subject of this
Convention.
(2) Where by reason of the provisions of paragraph (1) an
individual was at any time domiciled in both Contracting States, and
(a) was a national of the United Kingdom but not of the United
States, and
(b) had not been resident in the United States for Federal income
tax purposes in seven or more of the ten taxable years ending with the
year in which that time falls,
he shall be deemed to be domiciled in the United Kingdom at that time.
(3) Where by reason of the provisions of paragraph (1) an
individual was at any time domiciled in both Contracting States, and
(a) was a national of the United States but not of the United
Kingdom, and
(b) had not been resident in the United Kingdom in seven or more of
the ten income tax years of assessment ending with the year in which
that time falls,
he shall be deemed to be domiciled in the United States at that time.
For the purposes of this paragraph, the question of whether a person was
so resident shall be determined as for income tax purposes but without
regard to any dwelling-house available to him in the United Kingdom for
his use.
(4) Where by reason of the provisions of paragraph (1) an
individual was domiciled in both Contracting States, then, subject to
the provisions of paragraphs (2) and (3), his status shall be determined
as follows:
(a) the individual shall be deemed to be domiciled in the
Contracting State in which he had a permanent home available to him. If
he had a permanent home available to him in both Contracting States, or
in neither Contracting State, he shall be deemed to be domiciled in the
Contracting State with which his personal and economic relations were
closest (centre of vital interests);
(b) if the Contracting State in which the individual's centre of
vital interests was located cannot be determined, he shall be deemed to
be domiciled in the Contracting State in which he had an habitual abode;
(c) if the individual had an habitual abode in both Contracting
States or in neither of them, he shall be deemed to be domiciled in the
Contracting State of which he was a national; and
(d) if the individual was a national of both Contracting States or
of neither of them, the competent authorities of the Contracting States
shall settle the question by mutual agreement.
(5) An individual who was a resident (domiciliary) of a possession
of the United States and who became a citizen of the United States
solely by reason of his
(a) being a citizen of such possession, or
(b) birth or residence within such possession,
shall be considered as neither domiciled in nor a national of the United
States for the purposes of this Convention.
-- from the US-UK Estate Tax treaty
http://www.dooley.co.uk/text/84untknges.htm
I don't think the new (2001/2002) Income Tax treaty changes anything. The
latter, ratified in 2003, is discussed by Freshfields at
http://www.freshfields.com/practice/tax/publications/pdfs/6188.pdf
Thus, a UK domiciliary who has lived in the US 7 out of the last 10 years of
his life may have an estate that escapes UK taxation, although the high rate
of US tax may not provide much succor for the heirs (except that there are
ways and means of avoiding that, including various charitable and
quasi-charitable trusts, and pre-immigration dynasty trusts, etc.)
As for domicile: one can contrive to be non-UK domiciled; indeed most of
those whose fathers were born abroad will probably remain non-UK domiciled
the rest of their lives.
Even where the Inland Revenue lay claim to tax, so long as taxes are
uncollectible abroad they can, as the Floridians say, pound sand. (The US
has an active collection agreement with Canada, but none others that are
honoured, although there are provisions in their treaties with France, South
Africa and a few other countries; and even the Canadian collection agreement
is only effective in the USA in respect of non-US citizens and in Canada as
regards non-Canadians.)
For those who are in fact UK-domiciled and have no hope of being (or having
their estate being) exempted under the treaty, it appears that -- like my
Maltese and Saudi neighbours in London -- they will have to divest
themselves of all UK (and, arguably, Channel Islands -- think of the
Rossminster/Tucker case) property and visit the UK only as a tourist.
But life is tough on several counts for people with one foot in the UK and
the other in the USA:
http://tinyurl.com/5x8ze and
http://www.taxlinks.com/rulings/1990/revrul90-79.htm
(US capital gains tax on sale of UK residence based on dollar value at time
of purchase and time of sale, respectively, with no allowance for mortgage.
So someone with a 100% mortgage may owe more tax than s/he made in gain
(even if qualifying for $250,000 or $500,000 exclusion, given the current
rate of exchange and property prices). And the marginal rate of estate duty
in the USA is close to 50% (federal and state).
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