Confused about Domicile – New York/US/UK

I know that most US Citizens living in the UK prefer to have a non-UK domicile so they don’t have to pay UK tax on income that is not remitted to the UK.

However, the DOM1 form says that to declare a non-UK domicile in a federal system, you have to declare a domicile in a particular state or province. Before I moved to the UK, I spent all my adult life in New York City, so my domicile would have to be New York.

New York State taxes on the basis of residence. When I moved to the UK, I declared myself a non-resident of New York so that I would no longer have to pay New York State or City taxes (after I had been living out of New York State for the required number of days), which are pretty high.

Looking at the New York State Department of Taxation and Finance website, it seems that New York equates domicile with residence. So that if I were to declare a New York State domicile on DOM1 (for the purpose of showing that I am not domiciled in the UK), it appears that I would have to become a New York State resident – meaning that I would have to pay income tax to New York State on my federal adjusted gross income.

So it seems to me that, for income not remitted to the UK, I would have to choose between:
1.   being domiciled in the UK – filing US and UK taxes, then taking credits so I don’t get double-taxed on the same income
2.   not being domiciled in the UK – paying US and New York State tax on the same income

It also seems that which of the above would require me to pay more tax would depend on the amount and type of income that I would have to report – and I can’t predict this for every year for the rest of my life.

In addition, if I had to prove that I was a resident of New York State, my only connections are with New York City (I have a bank account in New York City that I hold jointly with my sister, and my family lives in New York City). If I had to declare myself a resident of New York City as well as New York State, I would be liable for New York City taxes as well.

Have I analysed this correctly? Is it possible that in my case, it might be better to declare a UK domicile after all? What do other former New York State/City residents do?

ETA - If I declare myself a New York State resident, doesn't that mean I'm no longer eligible for the foreign earned income exclusion, and would have to pay UK, US and New York State tax on my UK salary?

You are correct that New York starts from the premise of domicile.

However NY has a bright-line day counting test which overides this in relevant circumstances so it applies to most folks in the UK (unless they return to NY sooner than anticipated).

You might want to take a look at the Group A & Group B tests on pages 6 & 7 of Pub 88:

http://www.tax.state.ny.us/pdf/publications/income/pub88_1206.pdf

From a UK perspective you might be amused to know that it is actually impossible to have a UK domicile; only a domicile in England & Wales or Scotland or Northern Ireland! The actual mechanics are quite tricky too.  They involve filing the DOM1, getting a domicile ruling, filing the non-residence pages each year and claiming to be taxable on the remittance basis each year (there is no particular box on the UK tax return for this!).  Of course you'll also want to structure your non-UK savings accounts to be certain you don't accidentally remit income to the UK or the whole thing becomes a bit pointless.

The good news is that you are definitely on the right track to my mind because doing what you are doing will mean you pay less tax globally.

My two cents.

Yes, you are so over-analysing. :-) Where you got tied up is in the meanings of various words.  The words "domicile" and "resident" mean slightly different things in different places.  The word "resident" is not the same as the word "domicile".  You've been conflating the two.

So, under NY law, you aren't resident and don't have to file a return there, nor would you owe inheritance tax.  You might be NY domiciled (I am not a lawyer, and that is a legal question); certainly if NY's definition of domicile includes an intent to return you can say you are NY domiciled.  After all, who can prove otherwise?  If you are, when you write a US will you'll want to choose a NY lawyer and write it under NY law.

And under UK law, you're domiciled in NY but resident here.

A caveat for others reading this post: 

a)  This advice is only applicable to SweetPeach.  Your circumstances may be different.

b)  For legal reasons, it is always safer to ask questions with any unknowns (in this case, her legal domiciliary status) as hypothetical, rather than as factual.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Sweetpeach overanalyze? Never!

*walks away with head spinning*

My two cents.

Yes, you are so over-analysing. :-) Where you got tied up is in the meanings of various words.  The words "domicile" and "resident" mean slightly different things in different places

I know that they aren't supposed to be the same thing. However, I saw a few pages in the NYS tax website where domicile and residency were used interchangeably - I guess to "simplify" things for the reader?   Hence my confusion.


OK, looking at the link supplied by Guya, it seems you can be domiciled but non-resident according to the NYS definition.

"If your domicile is New York State, you are generally considered a
resident of New York State. However, even if your domicile is
New York State, you are not a resident if you meet all three conditions
in either Group A or Group B as follows:
Group A
(1) you did not maintain any permanent place of abode in
New York State during the tax year; and
(2) you maintained a permanent place of abode outside
New York State during the entire tax year; and
(3) you spent 30 days or less (a part of a day is a day for this
purpose) in New York State during the tax year.
Group B
(1) you were in a foreign country for at least 450 days during any
period of 548 consecutive days; and
(2) you spent 90 days or less (a part of a day is a day for this
purpose) in New York State during this 548-day period, and
your spouse (unless legally separated) or minor children spent 90
days or less in New York State during this 548-day period in a
permanent place of abode maintained by you; and
(3) during the nonresident portion of the tax year in which the
548-day period begins, and during the nonresident portion of the
tax year in which the 548-day period ends, you were present in
New York State for no more than the number of days that bears
the same ratio to 90 as the number of days in such portion of the
tax year bears to 548. The following formula illustrates this
condition:
number of days in the maximum days
nonresident portion x 90 = allowed in
548 New York State"

Which means that I can declare a NY state domicile but still be non-resident, so I don't have to pay NYS taxes.

Thanks Guya and Lizzit.

P.S. Guya, are you saying that to claim a NYS domicile, I have to file the non-resident form every year, even though I have $0 NYS income? I didn't file any NYS taxes for 2006 as I was resident in the UK the whole year.