Domicile Question if Applying for Dual US/UK Citizenship

I am married to a UK citizen and reside here (in the UK).  I would like to apply for dual citizenship (in another 2 years).  However, the soliciter who drafted my will strongly advised me not to.  I have assets and a pension in the US (which are only taxed in the US).  My soliciter says that I should maintain a domicile in the US to prevent the Inland Revenue from taxing these assets when I die (and taking a huge chunk out of my daughter's inheritance).  He also says that if I apply for UK citizenship it will be interpreted to mean that I have chosed the UK as my domicile (as opposed to residence) and the tax man will jump on my US assets.

I really would like to apply for dual citizenship but of course will not if it would jeopardize my daughter's inheritance in any way.

Appreciate your thoughts and comments.

Cheers,
Nancy

Nancy - life is more complex.  I know of no case law that states that acquiring British nationality for easing travel implies changing domicile.

You become deemed domiciled here for inheritance tax in any case after you been resident for any part of 17 years so the UK inheritance tax would kick in in any case assuming you live a good long life and are still here in the UK.

From an income tax perspective your income and gains on your US assets will be taxable in full in the UK from 6 April 2008. The pension scheme assets should not be taxable in the UK unless/until you take out money.

Your Will needs to have a special trust to enable you to pass assets free of US estate tax to a non-UK citizen spouse if you intend to do so.  Your UK husband can also not pass his assets to you free of UK IHT as long as you have different domiciles.

From an income tax perspective your income and gains on your US assets will be taxable in full in the UK from 6 April 2008.

Is this true even if she is non-domicile?

Is this true even if she is non-domicile?

Yes, unless she wants to pay the £30,000 annual charge.  There is a considerable opportunity for tax planning between now and 5th April 2008 so depending on circumstances speaking with a tax adviser could be very worthwhile.

Yes, unless she wants to pay the £30,000 annual charge.  There is a considerable opportunity for tax planning between now and 5th April 2008 so depending on circumstances speaking with a tax adviser could be very worthwhile.

But only if they have been a resident for 7 years, correct?

For anyone who wants to read more about this:

http://news.bbc.co.uk/1/hi/business/7238753.stm

Not exactly...

If you claim the remittance basis even if have been here fewer than 7 out 9 tax years you lose the UK personal allowance and annual capital gains exemption.

And - just to clarify - it is not 7 calendar years - it is any part of 7 UK tax years so it could be as few as 5 years plus a few days depending on precisely when you arrived. 

There are also swingeing tax changes for grantors and beneficiaries of non-UK trusts which will require notification of these to HMRC, plus significant UK tax costs whether or not the remittance basis is claimed or the money is brought to the UK.

Thanks for clearing that up, Guya. I'm still trying to wrap my head around all of this.

In the press regarding this, they always mention the 'super-rich' non-doms, but clearly this is going to affect many expats. The 1,000 pound threshold seems incredibly low to me.

I agree 100% - the £1,000 limit is far too low - indeed I have said that publicly to government but that does not mean they will listen!

I gather it's not law yet...and I wonder if the US will stand idly by...in the same BBC story it said '...The US Embassy in London has expressed concern that the changes would conflict with the double taxation treaty between the US and the UK.'   

I should mention that I am an old age pensioner (pension from a US job).  I do not earn any income in either the US or the UK.

I have been resident here for just under a year so this would not yet be a problem for me.  However, it looms large in the near future and is most troubling.

Thank you for everyone's comments.  They are very much appreciated.

Nancy

Nancy - you are right - the propsals are not law and will not be a problem providing you do not bring any of your pension income to the UK at all (including items purchased in the States out of that income) and you file an annual UK return claiming the remittance basis.

Once you been resident for the 7 years you'll have to report the income in the UK even it is not brought here.

Well...

I'm expecting a goodly number of my clients will arrange to be tax-resident in another country; one that has a tax-treaty with the UK and thus overrides the 90 day rule.  If you have a "permanent" residence in only one of the two countries, you are resident only in that other country, even if you exceed the 90 day rule.  Then Bob's your uncle; the UK loses some trillion £ in tax all for the want to collecting an extra £250 million. 

The word in this week's Economist is that faced with trillions of pounds of lost other taxes (the annual amount of VAT, income tax, and stamp duty paid by nondoms is in the billions), it would be fiscal suicide for the government to continue with the proposal in its current state.  The Economist also predicted he would likely lose face if not his office over this fiasco.

The 90 day rule is not in point in this issue - indeed there is no case law to support the proposals on this specific point,  so the current UK government proposals are almost certain to be held as unlawful when this comes to Court.

Treaty residence is attractive in limited circumstances.  It would not work for capital gains tax but may work for income tax in a few circumstances, although one can expect the UK to audit all such treaty-based tax returns. 

One obvious drawback to this plan is that Lizzit's clients may then need to pay her for US advice; a qualified UK adviser for UK advice (in which I do not believe she is qualified) plus an adviser in a third country for advice there. So we have three sets of accounting fees at the start without knowing if the tax result is any better...All good business for tax advisers anyway I guess!

If the UK double taxes non-doms, thus violating the treaties with some 100 countries, what's to prevent those 100 countries from taxing British citizens in residence on their assets and income in Britain?!  I think this whole affair is for political purposes...makes the pols (of all stripes) look good with their constituents...'we're gonna make the foreigners pay!!!'  But I really can't imagine how they could really do it...I should think there are tax attornies from most of those 100 countries already queuing up to file briefs.