App 4 Citizenship by Descent - House Sale & Double Taxation Questions

I'm applying for citizenship by descent and hope to move to N. I. by the end June 2013. (My app went in just this month.)

I am disabled and collecting SSDI, and from what I can tell, I'll have to file taxes in both the US and the UK for the rest of time after the move (and I understand that my SSDI is not taxed in the UK as a result of the US/UK tax treaty). I know I have time to nail all that down, but right now I have these questions (not knowing the details of the US/UK tax treaty or anything about UK taxes):

1) I'm going to be selling my mother's home in the US as her sole beneficiary in 2013. I will have no tax obligation in the US if the house does not sell for more than its value at the date of her death. (And if it sells for more, I'd consider myself fortunate to owe taxes on the extra amount.) QUESTION: What, if any, tax obligation would I owe in the UK? (If I would owe something, if I sell the house in 2013 and put off moving to 2014, will I have dodged taxes?) Generally, what can I expect?

2) I plan to rent my home here, I understand I have to deal with whatever the agreement is between the two countries when it comes to rental income and selling my home. QUESTIONS: What if I decide to put it on the market when I move rather than rent it? In the US, since it has been my primary residence, I'd owe no taxes on the sale. What about the UK?

Aside from those questions, if there are tax advantages to selling over renting or other strategies, I'd appreciate being given a head's up.

Oh darn, I just read on this site how the state where I live (Virginia) might still try to collect taxes from me. While I have not owed taxes for a while, living off of SSDI, it's conceivable if interest rates return and I rent my Virginia home, that I could end up owing taxes. As it is, the fact that I would be renting property here would make them want to collect taxes from me. Well, duh. Sorry, my brain is generally foggy as a result of my disability, but dealing with my mother's death and her home being ruined by a water leak at the time of her death has me brain dead. So if I don't want Virginia coming after me, then I'd want to depart fully. I just might have to pay Virginia taxes.

I can comment on Virginia, but not your other questions. It is very difficult, but still possible, to break ties with Virginia, and there is precedent if you move abroad and have no ties to VA. However, as long as you own property there and have 'Virginia source' income, forget about breaking ties to that state.

You will need to file a non-resident state tax return. Paperwork, but not that complicated for limited income. Depending on the amount of income, you may or may not need to pay Virginia state tax. If in doubt, make estimated payments, because VA will assess a penalty.

Thanks... I think reading that Virginia is going to continue to see me as a resident has pretty much convinced me that I want to break all ties by selling my home. So it's good to know that if I sell my property and close my bank accounts, that there's precedent for ending "resident" status.

There are a number of things to have on your list for breaking ties to VA.

Hopefully, you will be able to sell your house, That's the main 'tie'. After you make the move abroad, you will need to cancel your voter registration, close all bank accounts, and get a UK (or NI) drivers license ASAP, because you also need to cancel your VA license. If you have a library card cancel that, and of course there should be no vehicles registered in VA. Keep copies of ALL your paperwork confirming everything.

The first year file a non-resident return, whether you have sufficient taxable income or not. Then you need to write to the VA dept of taxation and specif that you have permanently moved abroad, and have established LEGAL DOMICILE in NI, and have no ties to VA and that this is a permanent move. You will be asking for a determination that you are no longer required to file a tax return. You also need to state that you are subject to UK tax as a legal permanent resident, and will be complying with all applicable law. There is precedent for this, and you SHOULD then receive a notice of determination and that's it. NEVER go back to VA to live. If you do, they will zap you for the years you claimed non-residency.

It's easier if you move to another state first and establish residency there, but that has ts own issues. If you have kids in VA schools, that is also considered a tie. It's a nasty state. I have VA source income for 2012, but in 2013 I intend to apply for determination. I also decided NOT to request an absentee ballot. Breaks my heart not to vote, but it's a small price in the grand scheme of things.

I am disabled and collecting SSDI, and from what I can tell, I'll have to file taxes in both the US and the UK for the rest of time after the move (and I understand that my SSDI is not taxed in the UK as a result of the US/UK tax treaty).

As a US citizen and UK resident you will have to file taxes in both the US and the UK.
US SS payments made to people resident in the UK are only taxable in the UK.....I'm not sure if this applies to SSDI as well.

Exactly how you'll be taxed in the UK on any US income or capital gains will depend on your UK residency status and whether or not you can claim and use the remittance basis. But it will definitely be simpler for you to sell your VA house before you move to the UK. That way you only have to deal with capital gains in the US and it will help you in breaking ties with VA and not having to file VA taxes again. Also if you rent the US house out for a certain amount of time (not sure of the number of years) and are living in another house you will loose the $250k capital gains tax allowance if you sell it.

What you then do with the money you get for the house will take some consideration as there are some restrictive tax regulations imposed by both IRS and HMRC when it comes to certain foreign investments. the best thing to do might be to use it to buy a house in N.I.
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Thank you Vadio.

I would have never thought of canceling my voter registration or library card. My car will be out of my hands before the end of the year 2013. Also, tax for the tip on tax filing and writing the Department of taxation.

Yeah, it would be nice to vote, but I'm ready to end ties to Virgina, have no plans to ever return to Virginia, and it's not feasible to move to another state first given that I'm disabled and have only so much energy to go around.

Thanks again.

NUN,

I will definitely be buying a home outright in N.I. but probably before my VA home sells. I read that SSDI is not taxed in the UK per the treaty, though at some point I might be able to switch to Soc Sec based on my ex-husband's account (I have to investigate this, but plan to wait until I am about a year out from when I would be eligible).

I think I need to sit down with a tax advisor to discuss what to do with my savings.

Thanks!

I read that SSDI is not taxed in the UK per the treaty, though at some point I might be able to switch to Soc Sec based on my ex-husband's account (I have to investigate this, but plan to wait until I am about a year out from when I would be eligible).

I believe you have to have other earnings to be taxed on SSDI in the US, but I don't know how the UK/US tax treaty covers it. Can you remember where you read about it and post a link?

I do know that many UK non taxable benefits are fully taxable when paid to a US citizen and that the treaty explicitly covers payments that are SS pensions. SSDI is not a SS pension so it might well be classed as foreign income by HMRC if it is not explicitly covered in the treaty.

If you ever do qualify for SS and you are a UK resident that will definitely only be taxable in the UK.

If this link is correct it looks like your SSDI might well be UK tax exempt. FYI it looks like it might be exempt because of HMRC rules and not because of the treaty. Any tax exempt benefits you get from the UK will be taxable by the IRS.

http://www.taxguide.co.uk/content/what-foreign-income-taxed

 Different issue...... [smiley=bigcry.gif]I am a U.S. citizen, 72 years old, and live in the U.S. I receive a small private pension from a U.K. company.The M.H.R.C. deducts their Paye, before payment is sent to me over here.I  suffer from M.S., and have been in and out of hospital for the past 7 years. My pension has gone by D.D., into my wife's account. Requests from revenue for self assessment, has gotten lost in the fog. I am now trying to sort through neglected issues, and have  found these revenue inquiries. I now have copies of all the correspondence, and forms. I spoke with them. They are short on sympathy. In reading through the forms today they really are for a U.K. citizen, and asking information from a U.K. citizen. Does anyone have any info on this?Is there a simple form for this, I can request? Any info is deeply appreciated.

From what I understand under the FVAP a state cannot require that you remain a resident for tax purposes if you choose to vote. However, if you elect to terminate your residency/domicile, you're only guaranteed the right to vote for federal offices (President/VP and U.S. Senator/Representative); if you want to vote for any state or local offices you'd probably have to retain your residency.

Different issue...... [smiley=bigcry.gif]I am a U.S. citizen, 72 years old, and live in the U.S. I receive a small private pension from a U.K. company.The M.H.R.C. deducts their Paye, before payment is sent to me over here.I  suffer from M.S., and have been in and out of hospital for the past 7 years. My pension has gone by D.D., into my wife's account. Requests from revenue for self assessment, has gotten lost in the fog. I am now trying to sort through neglected issues, and have  found these revenue inquiries. I now have copies of all the correspondence, and forms. I spoke with them. They are short on sympathy. In reading through the forms today they really are for a U.K. citizen, and asking information from a U.K. citizen. Does anyone have any info on this?Is there a simple form for this, I can request? Any info is deeply appreciated.

As this UK pension is paid to someone resident in the US it should not have any tax withheld from it in the UK. You need to file a US-Individual 2002 form. This will adjust the UK tax code on the pension to NT so that no tax is taken out. When you talk to then again ensure they know that the pension is being paid to someone resident in the US and that under the US/UK tax treaty the pension is not taxable in the UK.

http://www.hmrc.gov.uk/cnr/us_individual_2002.pdf

Your pension is taxable in the US and you must include it on you 1040. The exact details of how it will be taxed by the IRS depend on the type of the UK pension.....ie defined benefit or SIPP etc.

From what I understand under the FVAP a state cannot require that you remain a resident for tax purposes if you choose to vote. However, if you elect to terminate your residency/domicile, you're only guaranteed the right to vote for federal offices (President/VP and U.S. Senator/Representative); if you want to vote for any state or local offices you'd probably have to retain your residency.

This is absolutely correct. Just ensure that when you send back your absentee ballot request (FPCA) that you tick the box saying you are abroad indefinitely with no plans to return. The election officials will send you a special ballot containing federal candidates only. Voting in this way will not expose you to tax in any state. You can do the whole thing on http://www.votefromabroad.org.

Do this ASAP as elections are only 5 weeks away and you'll want to make sure you get your ballot in time!

I couldn't find the part in the treaty saying that SSDI was exempt though I sees Nun's link to UK law. Heck, I can't even find the treaty. I would have thought I would have saved that particular link.

Thanks for the link about voting in national elections.

In looking at the taxable rate of income in the UK, it might not be worth converting to my ex-husband's social security from my disability income, as I might end up with less money after taxes.

And I just read that I have to be a resident for 183 days or more to be taxed... but that wasn't the complete story. Trying to find the complete story is like trying to find a needle in a haystack. However, it appears that changing my leave date to mid July instead of mid June would be a good idea.

To get my questions asked, would people recommend that I contact a local big 10 accounting firm or try to contact a firm in NI who is familiar with these sorts of tax questions?

Thanks.

- As regards SSDI taxable in the UK, I would start here:-
http://www.hmrc.gov.uk/manuals/eimanual/EIM76009.htm
It's interesting: there's room to argue it should be tax free. I think it is worth laying out all the options and working through what tax would result, including a conversion to Soc Sec. (two sets of personal allowances here).
- Complete story on residence, well, as the Irish say I wouldn't start from where you are. Probably from the date of arrival, but it is worth figuring out the result you want and working through the options to achieve that (need good data to do that).
- Gains tax on mother's property. I agree with 'nun' and also wish to point out that you may be in that interim period of dealing with a person's estate between death and completion (actually distributing everything), and so there might just be some gains to pay by the estate
http://www.hmrc.gov.uk/sa/rec-needed.htm#2
- Local big 10 firm: it is worthwhile saying to an advisor "this is my data... before you start charging fees, can you confirm that you think there are options which will save me tax compared to me just carrying on anyway?" Very few firms specialise in UK/US. And if you want advice on savings you'll need to pick a firm that's authorised twice (tax and investments). You're very welcome to ask me, we do all the above, happy to study the figures and report back.