Questions on UK-US Inheritance Tax/Estate Tax treaty
Question:
In accordance with the UK-US Inheritance Tax/Estate Tax treaty. Under Article 4: what would make a UK domicile a US resident? (Would this be by virtue of having resided in the US for a term of years i.e., 3 years)?
Under Article 5: would an individual still be considered a national of the other country if one can assess which country is the domicile based on this rule (despite being both a US resident and UK domiciled) or would an individual be taxed on all US and UK assets if the individual was both US resident and UK domiciled? (regardless of the rule).
Answer:
Under Article 4: what would make an UK domicile a US resident? (Would this be by virtue of having resided in the US for a term of years i.e., 3 years)?
The treaty states:
'…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;…'
Therefore the treaty would apply to individuals if they were resident in the US at the relevant time (eg date of death or date of transfer) or if they had been resident in the US at any time in the previous 3 years.
Residence for this is just the standard US interpretation, and therefore you'd need to look at the US domestic provisions for determining US residence (eg by looking at whether you had a US green card or had a 'substantial presence' in the US).
Under Article 5: would an individual still be considered a national of the other country if one can assess which country is the domicile based on this rule (despite being both a US resident and UK domiciled) or would an individual be taxed on all US and UK assets if the individual was both US resident and UK domiciled? (regardless of the rule).
If he was US resident and UK domiciled you'd need to go through the tie breaker rules in Article 4 to assess where his fiscal domicile is for treaty purposes. This looks at where he was resident for the previous 10 years and if that's not conclusive it then looks at the standard tie breaker issues of where is the permanent home, the centre of vital interests etc.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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